Sunday, July 12, 2009

Energy Input Management Advice

Answer this question, growers: Why should you not want to buy natural gas when its cost per dekatherm is at its very lowest?

"Because you'll never know what cheapest is," says Bill Swanekamp, the president of Kube-Pak in Allentown, N.J., who led an educational Sunday morning on energy input management. "It's better to say you can pay so much for X many dekatherms and then buy it with no regrets. Don't be greedy, be reasonable. Fix a price you can afford as a business."

Kube-Pak purchases most of its natural gas at fixed prices, and Swanekamp typically prefers to lock a price in for one year at a time. For Kube-Pak, there are more advantages operating at a locked price. He's also learned from other payment approaches that turned disasterous.

"I was in Key West (Fla.) on vacation when the Gulf War in Kuwait started," he says. "Immediately, I went into my room and tried to purchase a contract for natural gas. I couldn't get the contract, and the price of natural gas sky-rocketed over the next couple days. It cost me $25,000."

The truth, Swanekamp says, is natural gas and oil are commodities. They can be bought and sold by stockbrokers and don't necessarily have to be used. Just a few years ago, Wall Street took control of half of energy commodities. Brokers bid against each other, and the prices of energy inputs rose ridiculously.

No comments: