Just One Bag of Peanuts?!

I returned recently from a trip to Atlanta to visit with some of our commercial customers and to pay my semi-annual respects to the terrific people at the Georgia Public Utility Commission. Just before I left New York I read that Delta Airlines was emerging from bankruptcy. So I was particularly interested in flying Delta. One of the customers I was having dinner with is married to a Delta flight attendant. So when I booked my flight on Delta I thought I was doing a good thing: For Delta. For my customer’s wife. And for the city of Atlanta, where Delta is based.

Bad move. Maybe it was the fact that I had taken a flight to Houston the week before on Jet Blue. It wasn’t the fact that on Jet Blue I had room to put my legs. At 5’10” I’m not particularly tall, but since tearing my Achilles tendon last year I need room to stretch my legs and work them around a bit. Jet Blue seems to have heard from its passengers and given them some more leg room. I’m also not a huge fan of watching movies on flights, so I was not particularly impressed with the video screen embedded in the Jet Blue seat ahead of me. In fact, I found the constant ads annoying. They reminded me of Bruce Springstein’s old song in the early days of cable television, “Fifty-seven Channels and Nothing On!”

No, what impressed me about Jet Blue was its generosity. Nobody served a rubber chicken or a slice of shoe leather dubbed a filet mignon. To tell the truth I don’t even miss the dinners we used to balance on that little tray table. Instead, on three occasions during the flight friendly, smiling flight attendants came down the aisle and placed directly in front of the passengers a wicker basket filled with granola bars, packages of nuts, and bags of chips. When you reached out to take one the attendant said, “Would you like another?” “Oh, don’t mind if I do,” I would say. The act was generous. The smile was sincere. The atmosphere was hospitable.

Fast forward to Delta Airlines. As I felt a thrombosis working its way up my calves, I noticed a grouchy attendant coming towards me. He looked like his car had been totaled that morning after his wife had left him. He pushed a rickety metal cart that bushwhacked the knees and elbows of passengers on the aisle.

“What would you like?” came the gruff voice.

“What do you have?” I plaintively responded, hoping my guilt ridden voice would encourage him to take pity. I had not eaten since about 5 in the morning and it was now 7 pm.

“Peanuts!” was the response.

“I’d love some,” I said. The attendant handed me a bag – or rather, held a bag in my direction which I had to reach out to retrieve. Was it my imagination? Or did he clutch it tight in his hand and did I have to pull it from his grip?

“May I have another,” I asked in my most supplicating voice.

“Only if none of the other passengers want them and if there are any left,” came the reply.

I turned around and looked toward the back of the plane. Behind me was a sea of empty seats. “OK,” I said, “Please come back if there are any left.”

Needless to say, I never saw or heard from the attendant again.

I thought about my experience on Jet Blue. I thought about the cost of that little bag of peanuts. And I thought about writing a letter to the president of Delta whose picture I had seen in the newspaper recently.

What does this all have to with energy?

Customer service is more than just reassuring weather reports from the pilots’ cabin. It’s more than banners hanging from the ceiling of the terminal with slogans about customers coming first. It’s more than self-promoting ads in the newspaper or glossy inserts in monthly bills.

Customer service is about every single person in the company treating customers fairly and honestly. I wonder if that attendant’s manager ever quoted the Customer Golden Rule that we talk about at every MXenergy meeting: “Do unto our customers what we would want done to us.” I wonder if anybody ever asked the attendant: “If you were sitting in that seat on the evening flight and had not eaten since 5 in the morning, would you want another bag of peanuts?”

Sorry to say to my friends in Atlanta: Jet Blue has it right and Delta has it wrong. A bag of peanuts and a smile are small prices to pay for customer loyalty.

Storage Drops & Temperatures Begin to Rise

Inventory levels as at July 13, 2007 were 63 Bcf lower than this time last year and are fast approaching last year’s records at 2,692 Bcf. Although the market has already discounted prices on storage, there are indicators that show signs that the decline has lost its downward momentum and is nearing exhaustion. Yesterday, the wholesale price of natural gas for the August prompt month rallied and reached a high of $6.73/MMBtu settling at $6.706 which is an increase of 2.73% from the previous day’s settlement.

Both National Oceanic & Atmospheric Administration and AccuWeather.com are forecasting unusually hot weather in the Northeast and Midwest next week and the beginning of the following week which has led traders to buy back previously sold positions in anticipation of higher prices. The fund buying will continue if temperatures soar next week in the major gas-consuming regions, further bolstering prices. In addition, traders are on edge as we approach late summer which is typically the more active portion of the hurricane season. Yesterday in a note to clients, EarthSat, a private forecaster raised its prediction for named storms this season from 16 to 18.

On the supply side, we have been importing record volumes of liquefied natural gas (LNG) since April and it is estimated that July will set a new monthly record of 3.3 Bcf/day. It is also anticipated that LNG imports will begin to taper off in the coming months as buyers in Spain and parts of Asia have already begun to express interest in August and September cargoes at competitive prices. In the very short term, these market conditions provide an advantageous window for longer term natural gas procurements.

Special Report: Amaranth

On June 25th Platts Gas Daily issued a report on Amaranth, providing insight into the Amaranth event and potential future market repercussions. It was based on the United States Senate Subcommittee findings of excessive speculation in the natural gas market. The report highlighted how Amaranth’s excessive speculation distorted prices in the natural gas market. At one point Amaranth held over 70% of the open interest contracts in November 2006 along with
several spread positions in the market. The ability for Amaranth to unwind their positions was thwarted by an insufficient number of counterparties that would take on the
massive volume.

This brings up the issue of a price benchmark. If you hold a substantial position such that you, in essence, are the market, how can you value your position? You are the generator of the price. Therefore, unrealized gain and losses can be masked as they are no longer an arm's length benchmark. The owner of the substantial position now can price to achieve its required benefit.
Another important issue is that Over the Counter (OTC) trading is not regulated. The NYMEX is regulated and it requires traders to report positions and comply with size limits. The ever growing OTC market can provide the service and liquidity found in the NYMEX without such restrictions.

When Amaranth was asked to reduce the size of certain positions on NYMEX, they accomplished this by increasing their positions in the OTC market sometimes with positions greater than the original NYMEX position. These are just a few issues highlighted in the report. Although the report is lengthy, it is worth the read as it provides important insights to many other interesting risk factors that drive our market.

LNG To Meet Increased Demand But Must Overcome Local Resistance

The demand for natural gas in the United States is expected to increase 20% over the next 25 years. New LNG terminals are needed, however, LNG projects are expensive and must overcome "not in my backyard" sentiments.

Over the last three weeks, the wholesale price of natural gas has fallen over 20% due to growing storage levels caused by higher LNG imports and lower demand than previously expected for electricity generation due to cooler weather in the major gas consuming regions of the country.
LNG imports increased 54.4% in 2007 versus 2006 imports according to LNG Watch, a private publication. "We need more LNG because the nation's demand for natural gas is greater than the current domestic supply" was quoted from a Washington D.C seminar. Furthermore, the U.S. Department of Energy forecasts a 20% increase in natural gas demand over the next 25 years. Already 15% of the natural gas used today is imported, primarily from Canada. By 2030, we'll have to raise this to 21% to meet US demand. That means turning to countries with an abundance of natural gas like Trinidad and Tobago, Australia, Russia and Qatar.

Meeting Natural Gas Demand with LNG
Natural gas demand is outstripping supply because it is a clean-burning alternative to coal and other petroleum products, such as oil - especially for generating electricity. By 2030, the gap between demand and supply is projected to reach 21%.

As we exhaust domestic supplies of natural gas, the U.S. will need to rely increasingly on natural gas that is brought in from overseas. To bring it to our shores, this gas must be converted into a liquid - LNG - before it is shipped. LNG helps the nation meet its very real and pressing need for new energy supplies now.

There are only five U.S. facilities plus one in Puerto Rico currently capable of importing LNG; not nearly enough to handle demand. To meet the growing need for natural gas, more LNG import terminals need to be built. However, LNG projects are expensive and must overcome "not in my
backyard" sentiments. BHP Billiton’s plan to build an LNG terminal off the coast of the Los Angeles was recently rejected primarily due to environmental concerns.