August 2006 Energy Update

Market Overview:

Energy traders continue to move the markets with volatility and the back-and-forth pricing action has left everyone searching for certainty and a clear direction. On the one hand we are still faced with the speculation that an Iranian nuclear situation might cause a decrease in the world’s 4^th largest oil producer’s output. Other headlines such as BP’s shutdown in Alaska, the potential for light sweet crude oil production outages due to greater unrest in Nigeria and the very real possibility that this year’s hurricanes will knock off line some production in the Gulf of Mexico are also adding weight to the argument for continued bullishness.

On the other hand, economic reports are surfacing about the bottom falling out of the housing market. This could potentially cause a general economic slowdown which might generate less than expected demand for energy. Summer-driving is nearing an end, gasoline demand is tapering and suppliers are cranking it out due to very high profit margins. Power demand from air conditioning isn’t nearly as high as it could be and natural gas supplies are currently plentiful. Injections to gas storage may even have to be slowed as we approach the winter since there is so little space left to put it. If this happens, it will add significant pressure to the price of the heating fuel as well as forward electricity in regions that rely heavily on gas fired power generators.

What we know for sure is that there will remain a hefty pricing premium for fuels and electricity for the foreseeable future. The market is looking for some big questions to be answered to help determine which side of the trade to be on. Either way, this hurricane season is sure to cause some ripples in the market given the fact that last years destruction from Katrina and Rita is now being projected to cost tens of billions of dollars to the oil and gas companies alone.

By the beginning of winter, if natural gas storage are full and there isn’t too much additional damage to Gulf production, we will likely see a significant price softening before the winter arrives in earnest…sometime in mid-December. Since futures pricing premiums are still hefty, it still makes sense to leg into a fixed rate for some, but not all, commodity in the coming weeks and months. I am hoping for ripe market conditions and I am considering buying for my clients no more than about 50% forward gas and fixed electric for the coming winter and summer while letting the remaining 50% load float at spot market rates. Please reach out to Great Forest if you need some assistance determining which suppliers are willing to offer these types of flexible supply products and you would like some help validating and tracking the deal’s performance over time.

Regulatory Update:

If you have not yet taken a quick read through the 1700 odd page Energy Policy Act of 2005 to figure out just what to do next, try not to lose too much sleep. Taking advantage of several provisions may be to your benefit but many specifics still have yet to be ironed out, published and distributed for general consumption. Keep an eye out, I am expecting a roll-out of many of the details soon.

Check out the coming event for more info:

The New Energy Tax Act

Presentations will be on the new Energy Tax Act federal tax deductions for energy reducing investments for commercial building owners and tenants. Architects and Engineers may benefit on their personal tax for municipal buildings as well as residential property owners. Discussion will include how to plan to maximize the deductions related to Lighting, HVAC and building envelope investments. This is FREE to attend but you must register online

WHEN: September 15, 2006 (8:30 a.m. to 10:30 a.m.)
WHERE: Wolferts Roost Country Club, 120 Van Rensselear Blvd, Albany, NY 12204

Presenters: Charles Goulding Attorney/CPA /MBA and Jacob Goldman Engineer/MBA

For more information: Contact Mark DeChiro at 518-432-6400 x 249 or dechiro@eba-nys.org

US DOE “Short Term Energy Outlook – August 2006”:

Significant relief from the high crude oil and gasoline prices is not likely to occur soon as the current tight market must also cope with strong gasoline demand, which typically reaches its seasonal peak in August, and the traditionally more active months of the hurricane season.

In 2006 and 2007, the WTI crude oil spot price is projected to average around $70 per barrel (West Texas Intermediate Crude Oil Price). In mid-April 2006, the daily WTI spot price passed the $70 level and is now in the mid-$70s. Adjusting for inflation, crude oil prices have not been this high since late 1982. A special supplement, Why Are Oil Prices So High? discusses in more detail the factors contributing to high crude oil prices.

Retail regular gasoline prices are projected to average $2.72 per gallon in 2006, and $2.67 in 2007 (Gasoline and Crude Oil Prices). Summer 2006 (April 1 to September 30) regular gasoline pump prices are expected to average $2.92 per gallon, 55 cents higher than last year's average of $2.37 per gallon. Summer 2006 retail diesel fuel prices are expected to average $2.91 per gallon, 50 cents higher than last year's average of $2.41 per gallon.

Natural gas prices are projected to be lower through the rest of this year relative to the corresponding period in 2005. The expected 2006 average of $7.69 per thousand cubic feet (mcf) for Henry Hub spot prices would be a drop of $1.17 from the 2005 average (Natural Gas Henry Hub Spot Prices). For 2007, the Henry Hub average price likely will move back up to an average of $8.17 per mcf, assuming sustained high oil prices, normal weather, and continued economic expansion in the United States.

Continued at : http://www.eia.doe.gov/emeu/steo/pub/contents.html

STEO Supplement: Why are oil prices so high?

Read here: http://www.eia.doe.gov/emeu/steo/pub/special/high-oil-price.html

fig1

Strong Growth in World Energy Demand is Projected Through 2030

Worldwide marketed energy consumption is projected to grow by 71 percent between 2003 and 2030, according to the reference case projection from the International Energy Outlook 2006(IEO2006) released today by the Energy Information Administration (EIA). The IEO2006 shows the strongest energy consumption growth in developing countries outside the Organization for Economic Cooperation and Development (OECD), especially non-OECD Asia (including China and India), where robust economic growth drives the increase in energy use. Energy use in non-OECD Asia nearly triples over the projection period (Figure 1). Continued at: http://www.eia.doe.gov/neic/press/press271.html

It looks as though there might be some oil supply relief on the horizon as Iraqi production ramps up:

Oil majors maneuver for prime position in Iraq Reuters By Peg Mackey http://today.reuters.com/news/articlebusiness.aspx?type=tnBusinessNews&storyID=nL17768112&from=business

LONDON, Aug 23 (Reuters) - The world's top oil companies are maneuvering intently to win a stake in their oilfield of choice when Iraq finally opens to multibillion dollar investment.

From a safe distance, multinationals are poring over data from Iraq's most promising oilfields and some of its older workhorses to gain the edge when the bidding begins.

Iraqi Oil Minister Hussain al-Shahristani has signaled the race for oilfield deals worth $20 billion could start this autumn. But oil men, noting a lack of security and investment law, are under no illusion that drilling is imminent.

"We've been doing a lot of work behind the scenes and are ready to act quickly -- but under the right conditions," said a senior Western oil executive.

"At this stage, there is an effective short list of key oilfields and players. It's been a natural selection."

If you haven’t been spending your SBC funds lately, have a look at what NYSERDA is offering:

NYSERDA’s Current Funding Opportunities

http://www.nyserda.org/funding/funding.asp?i=2

Looking for a certified PV Installer:

http://www.powernaturally.org/Programs/Solar/Installerspv_bycounty.asp?i=1

Also check out:

Clean and Green

6th Annual
Empire Energy &
Environmental Exposition

September 25 & 26, 2006 - Syracuse, NY

Oncenter Complex -

800 South State Street

www.E4NY.com

Updated Agenda

http://www.e4ny.com/program.html

Great Forest General Housekeeping:

We have moved to Harlem! and if you have not yet made a note of the following address change, please do so. Our phone numbers and e-mail addresses remain the same:

Great Forest, Inc.

2014 5^th Avenue

New York, NY 10035

There is only so much benefit procurement efforts can achieve. While kilowatts and megawatts will cost you an uncertain amount of money in the very near future, negawatts can and will pay you back…but are best generated with full and willing cooperation of the entire company.

The US DOE has devised a number of tools for management, property operations and financial folk to better explore the available options when determining what energy projects will be winners. Most of these tools are available from the DOE. However, they are also very time consuming and detail oriented. Please reach out to Great Forest to learn more about how to make these tools work to your maximum benefit.

Great Forest can help you quantify just how cost effective, both on a short and long term basis, capital projects can be. Does it make sense to hold off on you next energy efficiency retrofit project? Ask us, we will be glad to roll up our sleeves for your benefit. We can also help to implement a management plan that will allow for a more thorough determination about which projects will make the most sense in the coming months and years.

A big part of this management strategy and plan implementation will be to educate the players, from the top level executive to the guy that flips the switches every day. The goal is to fully integrate a plan that permeates the entire organization. We will help set the foundation, get the ball rolling and then monitor the progress over time to ensure that none of the pieces of the puzzle fall apart. If they do, we will be there to fit a new one into place.

As part of Great Forest’s focus towards becoming a leading Sustainable Business Consulting firm, Energy is an immensely critical area of focus that not only is necessary and expensive, but also potentially destructive in ways we are not very sure about. We can diminish our potentially damaging impact while at the same time saving money or even generating a revenue source through demand reductions and curtailment of energy usage. It may eventually benefit your company in ways that are yet to be standardized in the US. Climate and carbon markets are voluntary for now and are gaining steam as we speak.

International markets have been up and running for some time now but the US has been a bit slow in this arena. It may turn out to be beneficial that we are taking it at such a snails pace as I am sure we hope to learn from the mistakes of others and create the best possible market for one of the most complicated issues. The potential for climate change to plague us in ways we can only speculate about is very real and this is the reason why we should at least begin to prepare.

In other news:

Intro. 20 - A Global Warming Strategy for New York City http://www.climaterescue.org/Intro%2020.htm

The synopsis of this bill is as follows:

Creates a framework of transparency with annual reporting of greenhouse gas (GHG) emissions and plans submitted to the public. (This is often a problem with city government.)
It also commits the city to 20% reductions of GHGs from a 1994 baseline by 2009
Stipulates further reductions of 25% by 2015 and 30% by 2020.
It creates a framework for involving private sector partners
And it covers all city operations