World oil and gas consumption continues to rise, keeping prices high and volatile.

ENERGY MARKET REPORT

According to the Energy Information Administration, higher oil production, which is anticipated both inside and outside of OPEC, is expected to offset moderate world oil demand growth and relieve some of the recent tightness in the oil market. The West Texas Intermediate (WTI) crude oil averaged $93 per barrel in January 2008, and is expected to average $87 in February. The WTI price, which averaged $72 per barrel in 2007, is expected to average about $86 per barrel in 2008 and $82 in 2009. Recent trends, however, indicate that price volatility will remain high.

Despite these higher oil prices, world oil consumption continues to rise. For 2008, it is expected to grow by 1.4 million bbl/d. Both OPEC and Non-OPEC productions are expected to rise in 2008. OPEC output is expected to increase by 1.4 million bbl/d in 2008. Non-OPEC production is expected to rise by 0.9 million bbl/d in 2008.

In the U.S., domestic petroleum consumption is projected to average 20.7 million bbl/d in 2007, up 0.2 percent from 2006. Domestic crude oil production, meanwhile, is projected to average 5.1 million bbl/d, unchanged from 2006 levels.

On the natural gas front, the Henry Hub spot price averaged $8.25 per mcf in January and prices are expected to remain high through the first quarter of this year relative to the first quarter of 2007. On an annual basis, Henry Hub spot prices are expected to average $7.83 per mcf in 2008 and $7.93 per mcf in 2009. Total U.S. natural gas consumption for 2008 is expected to increase by 0.9 percent in 2008 and by 1.0 percent in 2009.

EnerNOC encourages all organizations to assess their current and future exposure to energy markets to determine if now is an intelligent time to extend contracts or develop forward looking strategies. Regardless of one’s view on whether energy prices will rise or fall, organizations should assess their current positions to determine if there is an opportunity to save money and/or mitigate risk.

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Bill extends Renewable Portfolio Standard mandate, and requires the state to develop cost-effective energy efficiency opportunities before turning to generation.

NEW MASSACHUSETTS ENERGY BILL TO CREATE MORE EFFICIENCY AND RENEWABLE ENERGY

Massachusetts’ new energy bill, called “An Act to Generate Renewable Energy and Efficiency Now,” will create more opportunities for developing efficiency and renewable energy. The bill was approved unanimously by the Senate on January 9, 2008, following approval of similar bills in the House of Representatives.

The bill maintains the current energy efficiency systems benefit charge, but also requires that utilities procure all cost-effective energy efficiency opportunities before buying additional power. This is expected to triple the energy efficiency in the state.

Of note, the bill extends the state’s renewable portfolio standard, and sets a target of 14% of energy sales by 2020 to be supplied by what are known as Class I resources, such as new solar, wind, hydro and advanced biomass technologies. Requirements for Class II resources, which include low-emission biomass and waste-to-energy technologies, will be set at a later date.

The bill also calls on utilities to submit a proposed plan to the state PUC establishing a 6-month pilot program for a “Smart Grid” which utilizes the electric delivery system, advanced “smart” meters, and other advanced technology to operate an integrated grid network communication system in a limited geographic area.

Competitive interests fear that some of the provisions in this bill favor utilities at the expense of improving the conditions in competitive energy markets. For example, the bill forbids certain municipalities from building new power plants if there are specific environmental concerns in the municipality, or if they are within range of certain activities such as day-care centers, schools or churches.

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MA businesses are apprehensive and struggling to stay afloat, after sharp increases in natural gas and oil costs have triggered a rise in electricity prices.

MASSACHUSETTS SPIRALING ELECTRICITY COSTS HAVE STATE BUSINESSES LOOKING FOR ALTERNATIVES

According to an article published on January 18 in the Boston Globe, spiraling electricity costs have left many Massachusetts manufacturing businesses apprehensive and struggling to stay in business. The Globe reports that Massachusetts manufacturers pay the highest electricity rates in the country, and the gap is continuing to widen. According to the Associated Industries of Massachusetts, electricity costs have caused several plants to shut down in recent years, with the loss of an estimated 2000 jobs.

According to the Boston Globe, sharp increases in the costs of natural gas and oil have triggered the recent rise in electricity prices, given that 60 percent of New England power plants run on these fuels. Growing demand, lagging supply, inadequate transmission, and difficulties at power plants have also contributed to pushing prices higher.

The Globe also reports that higher electricity costs are also preventing the state of Massachusetts from recruiting and retaining new manufacturing businesses. Many companies are choosing to relocate in nearby states where costs are not as high.

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Three bills proposed by the Governor's administration are intended to mitigate looming power shortages and price volatility trough greater efficiency and the auction of pollution credits.

NEW ENERGY PLAN IN MARYLAND

The administration of Maryland Gov. Martin O’Malley urged state lawmakers to act on bills aimed at encouraging energy conservation and producing clean power, according to an article published in the Baltimore Sun on February 13.

According to the O’Malley administration, the objective of the proposed legislation is to prevent rising electricity costs, a looming power shortage, and to remedy aging transmission lines that affect reliability. “The goal at the end of the day is affordable, reliable, clean energy,” said Malcolm D. Woolf, director of the Maryland Energy Administration.

According to the Baltimore Sun, one bill aims to reduce energy consumption in the state 15 percent by 2015 by requiring utilities to offer consumers financial incentives to reduce energy use. Another would allow the state to offer more low-interest loans, rebates and other incentives for energy-efficient measures. A third measure would more than double the amount of renewable energy that Maryland utilities are required to purchase for sale to their customers, rising to 20 percent by 2022.

Pollution credits auctioned to electric companies are expected to net anywhere from $80 to $140 million toward funding these bills; however, some lawmakers fear that the costs for the credits would be excessively borne by the consumers. According to the Baltimore Sun, some legislators said they were also reluctant to ask consumers, already upset about soaring utility bills, to pay a little more for less-polluting power or more efficient light bulbs and appliances - even if those purchases save them money over time.

To meet O’Malley’s promise to cut consumption by 15 percent in seven years, the Maryland Energy Administration’s proposal included legislation to finalize that goal requiring the state’s utility companies to purchase 20 percent of their power from wind, solar or other renewable sources by 2022. According to the Baltimore Sun, the requirement for utilities to sell more renewable power also could boost costs to consumers by up to 1 percent, a representative of the National Renewable Energy Laboratory in Colorado testified.

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Coal projects are facing increasing objections and greater financial scrutiny in light of uncertainty about their carbon emissions.

PRICES INCREASE AS UTILITIES TURN FROM COAL TO GAS

According to an article published in the New York Times on February 5, the price of natural gas has recently soared, due in large part to utilities turning to natural gas to meet expected growth in demand for power, after being thwarted in their efforts to build coal-burning power plants.

The New York Times reports that utility executives are resigned to building plants fired by natural gas – rather than coal – to supply reliable power day and night, due to growing opposition to coal plants across the country.

According to the New York Times, three big investment banks announced that they would now calculate a coal plant’s financial viability by including potential future charges for carbon dioxide emissions. The inclusion of these charges raises the threshold for financial viability in deciding whether to make new loans for such projects. Bank of America also recently made a similar announcement.

Despite growing demand for natural gas, supply is expected to remain flat or decline in the coming years, according to the Energy Information Administration. As the demand for electricity continues to rise by 2 percent every year, utilities inevitably will have to build new gas-powered plants with consumers bearing the burden of higher electricity rates.

Alternatives to building gas plants include reducing customer demand or remaining idle to see what happens. Experts are predicting the possibility of electricity shortages in the coming years.

Beyond fears of carbon dioxide emissions or fear of future carbon taxes, the New York Times also reports that a rapid rise in construction costs for power plants is also to blame for some coal plants being canceled.

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