Natural gas prices don’t seem to be receding. Electricity demand is increasing fast. And just as renewables are gaining ground, a new climate rule from the SEC is expected soon. 

With the goal of helping our customers understand these energy challenges and prepare for what’s next, World Kinect Energy Services hosted a Get Kinected Customer Event in Minneapolis, Minnesota, where our energy experts shared insights and fielded questions on pricing, the energy transition, and more. Here are the event’s top takeaways.

Natural gas takes center stage
Natural gas makes up 33% of U.S. energy and 40% of electricity. It also serves a key role in renewable energy, balancing the intermittency of wind and solar. It emits 50% less CO2 than coal and 30% less than oil, so it is considered a more climate-friendly fuel.

But the popularity of natural gas means that prices are likely to continue upward. Exports, pipeline capacity, and the transition toward electrification and renewables all play a role in this upward pressure. 

Exports of liquid natural gas (LNG) could double in the next seven years, which means we will be competing internationally for U.S. gas. While Russia’s war in Ukraine has meant more LNG exports to Europe, exports to Mexico, Asia, and the rest of the world have also increased as coal and nuclear plants are retired.

The infrastructure to export more gas to meet international demand has been growing, but at the same time, domestic pipeline projects to move gas across the country have slowed. The U.S. added the least gas pipeline capacity ever in 2022 after years of high shale production drove down the price of gas and limited new investment. 

After being flat for years, U.S. electricity demand is set to surge. Electric vehicles can increase a home's power consumption by 50% or more, and incentives like the Inflation Reduction Act are making EVs more popular. Bitcoin mining is another driver of electricity demand; it is estimated it could add 30,000 megawatts of power demand in Texas alone for the next five years—and California's power demand could nearly double by 2045.

As these factors push the price of natural gas upward, you could end up spending a significantly larger percentage of your organization’s budget on fuel and electricity. Understanding your options can help you better prepare.

The (not so basic) basics of energy price risk management
If you read enough about natural gas pricing, you’ll regularly see the term “basis.” It’s a critical part of the equation, but what does it actually mean?

Natural gas basis is the difference in price for natural gas at one physical location compared with another. (Think of the price of natural gas in El Paso versus Minneapolis.) These numbers are typically tied to Henry Hub, which is the U.S. benchmark because of its strategic location and interconnections with other markets.

For organizations that spend a significant amount on natural gas, price volatility can wreak havoc on budgets and planning. But that same volatility can become a benefit when it comes to risk management. With an eye toward building budget certainty, the right strategies can deliver better predictability.

While the spot price can often be advantageous, it is also by far the riskiest way to buy energy. Dramatic price spikes can easily wipe out any savings achieved by “riding the market.” And when an unexpected catastrophe strikes, the situation can get much worse.

You can leverage a variety of tactics for managing this risk, such as strategically fixing your basis cost ahead of time or employing a product like World Kinect’s Basis Logic.

There is risk associated with these approaches, so you should weigh pros and cons carefully. This is where a partner with extensive experience in energy and natural gas pricing can become invaluable. Another hedge against soaring fossil fuel costs is renewable energy. Expanding your energy mix with solar or wind power can actually be good for business and for the planet.

Climate changes impacting your business
Decarbonization has become a priority for companies across all sectors of the economy. Spurred on by pressure from investors, customers, and employees, organizations are crafting sustainability plans and reducing their carbon footprint. Not addressing climate change has become a risk in and of itself. In fact, the UN  predicts nearly $4 trillion worth of assets will be at risk of climate change by 2030. 

That reality prompted the SEC to draft a climate disclosure rule which is still being finalized. When the rule goes into effect, publicly traded companies will need to report climate-related risks, emissions, and carbon reduction plans. And as they are required to report on emissions across their supply chain, your business will need to provide this information if you partner with a publicly traded company.

Solar and battery storage
Onsite solar is one of the most popular forms of renewable energy. Businesses can use their existing roofs, parking structures, and open land to produce their own local, resilient solar energy. With today’s sizable federal and state incentives and tax benefits, onsite solar can provide a strong return on investment. The energy produced by onsite solar can be used to offset volatile and ever-increasing utility costs. Each project will also produce Renewable Energy Certificates (RECs), contributing to company decarbonization and sustainability initiative goals.

Located at your facility, lithium-ion battery technology can be used in a variety of ways to create enterprise value for your business. Using onsite battery storage to support demand charge management can be a solution to increasing and volatile utility demand charges. And when you stack additional revenue streams and cost savings on top, battery storage technology can deliver a strong value proposition. 

Like onsite solar, lithium-ion battery technology is gaining popularity in part because of the dramatic decrease in pricing coupled with tax benefits and incentives. While the industry is in its early stages of growth, onsite battery storage is a clean technology to watch over the coming years.

Insights that matter
Whether your business relies on natural gas or electricity to keep running, our experts can help determine which approaches can best protect your supply and deliver more budget certainty. World Kinect customers get exclusive access to our expert advisors at events like this one. Don’t miss out on their updates and insights.