Our current gas contract with Provident Energy Management will expire by the end of October this year. The three Boards of the three Corporations (the Casitas, the 88 Grandview Way building, the 880 Grandview Way building) have been investigating into new and better commitments.
The Management Office invited two suppliers for a presentation on Wednesday, July 29, 2009 in the party room of the 88 building. The first one to present was Mark Burtniak from Superior Energy. The second one was Ata Malick from Comsatec Inc.
Shorter-term contracts (e.g., 1-year or 2-year contracts) have lower rates and longer-term contracts (e.g., 3-year or 5-year contracts) have higher rates. One-year contract will save us money if gas price does not increase significantly next year, because it will allow us to continue to commit to lower prices next year.
However, if gas price increases significantly next year and in future years, then lock-in multi-year contracts now are better even though they have higher rates than one-year contracts.
During the presentation, prices for future natural gas starting November 1, 2009 were quoted as follows:
- For 1-year contract: 20.8 cents per cubic metre
- For 3-year contract: 24.3 cents per cubic metre
- For 5-year contract: 25.9 cents per cubic metre
(Note: natural gas prices, like stock prices, fluctuate every minute, if not more frequent. You may check energy prices on www.ino.com.)
To go long, or to go short? That’s the question.
The price for 5-year contract is about 25% higher than the 1-year contract price. That means if we go for 1-year contract, we already have (in a way) 25% immediate savings, but we risk of paying higher prices if natural gas price increases in later years. We don’t know unless we have a crystal ball, but unfortunately that’s something that we don’t have.
So we turn to the experts. Mark Burtniak of Superior Energy recommended to go long term (5 years), but Ata Malick of Comsatec Inc. recommended to go short term (1 year). Well, looks like they don’t have the crystal ball either.
Got comments?
Write your comments below,
or send your comments to GrandviewWay@gmail.com
No comments:
Post a Comment