Multifamily Energy Pricing during Uncertain Times
Portfolio owners that want to insulate themselves from energy market volatility are being challenged. The recent economic upheaval has opened vulnerability in all business sectors, including commodities that are essential for apartment operation and resident needs.
The immediate impact of the new coronavirus on natural gas consumption has been mild but market uncertainty weighs heavy because of other factors. A natural gas market that has held steady in recent years has changed significantly and many unknowns will dictate how soon it recovers.
For multifamily housing operators that work with third-party energy advisors the light at the end of the tunnel could be a little brighter. Operators who typically negotiate their own pricing may find they’re taking a backseat in pricing over the next several months.
Uncertain market conditions require energy expertise
The natural gas market has plummeted recently because of a warm winter, fallout from the virus and a huge drop in oil prices resulting from an ongoing price war between Saudi Arabia and Russia.
Prices dropped to near all-time lows in April following a seasonal adjustment and reduced demand as businesses, factories and households scaled back because of state and national stay-at-home orders. A struggling oil market has dropped gasoline prices to levels not seen in the last two decades and put additional pressure on the natural gas market.
In the meantime, natural gas storage levels, a barometer for pricing, have pushed above the five-year average. Reserves are enough to weather an economic restart, when consumption levels will presumably return to normal, but unpredictable summer and winter weather patterns could produce more volatility on energy prices.
What appears to be conditions for the perfect storm are forming and that could put strain on multifamily housing energy buyers who go it alone, says Dimitris Kapsis, Vice President, Energy Management at RealPage.
Because energy contracts are...