Energy Emergencies Give Little Advance Warning
In nearly every area of business, emergencies get the attention. From healthcare expenses to the cost of raw materials to cash flow – attention naturally follows the greatest need. It’s natural, but not the best approach when it comes to energy.
That’s because an energy emergency gives little advance warning. When prices temporarily fall and volatility appears to be easing, dramatic events that can drastically impact your budget may be just over the horizon or right under your nose.
CFOs consistently rank energy among their top financial concerns in the annual edition of “CFO Outlook,” produced by Bank of America/Merrill Lynch. The report surveys over 800 executives from U.S. companies with annual revenues between $25 million and $2 billion. Yet, the degree to which CFOs are concerned about energy often fluctuates wildly given the price of U.S. natural gas the previous year. Looking at the report findings from 2004 to 2011, each year that CFOs ranked energy among their top three concerns (2005-2009), natural gas prices had averaged $6/MMBtu or higher the previous year.
However, U.S. natural gas represents only one small part of the overall energy picture. Due to the fragmented and complex nature of energy, one market or pricing metric isn’t a proxy for all the risks and opportunities in the marketplace. Energy requires a much more nuanced understanding and strategy.
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