Some Do's and Don'ts for the upcoming period
February 1st 2008 While energy risks and prices fell marginally in Q1, prices and volatility are surging across the curve, Encore offers some tips for the upcoming period.
Energy costs to your business for the next three years have increased by 30% since September 2007. Market volatility has also increased, driven by the uncertainty associated with higher oil prices, the effect of carbon prices on electricity prices and the availability of marginal gas flows into the UK market.
Gas storage withdrawals have been occurring at their fastest rate in 5 years, which is actually seasonally normal for a slightly mild winter.
With 46 days of storage left compared to 60 days of the winter, there is risk of a gas shortfall should there be a cold snap. Norwegian supplies are now the marginal source of energy to the market in severe weather conditions. While storage is generally held by many market players, marginal Norwegian supplies are held by only a few companies, thus bringing potential for significant volatility in March which will have an impact across the gas and electricity curves. With 2009 gas prices now already in contango to 2008, the risk premium in the forward curve is already starting to roll forward.
Some Do's and Don'ts:
Do
• Consider buying 2009 power instead of 2009 gas as the spread between the two is distorted by a backwardated electricity curve compared to a gas curve that is in contango.
Don't
• Keep assuming prices will fall and therefore do nothing – problems need to be managed and energy is no exception.
• Start fixing prices provided you can unfix.
• Make sure you start to manage your 2009 and 2010 risk to use as a natural hedge to the current price increases. More articles from Encore Internation: | 
