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November/December 2006 Facility Management Journal
Crude Reality
Fluctuations in oil prices can affect the demand and price of natural gas and electricity. The key to financial survival for facility and property managers is: Don’t panic.
Last Summer’s BP oil field shutdown in Alaska sent shock waves throughout the country not only because thousands of oil barrels a day wouldn’t be produced, but because of the timing. The demand for crude had skyrocketed, and at $73 a barrel, it was at an historic high. The crisis sent some facility managers into frenzy, fearing a further rise in the price of oil would increase demand for - and price of – other energy resources, including natural gas and electricity. They scrambled to revamp their energy budgets, and south ways to quickly conserve energy… (continues in article)
Oil’s highs and lows
Historically, demand for crude oil and it’s byproducts tend to drop at the end of the summer for a number of reasons, including vacation-driving season. When the summer ends, demand drops, and therefore prices decrease. By the same logic, this is why the price for crude increases in the beginning of the summer in anticipation of higher demand due to increased demand for gasoline. In BP’s case, the primary reason energy prices didn’t balloon was the company realized it could repair one pipeline, while keeping the other line output of 200,000 barrels a day, rather than BP’s original estimate of 400,000 barrels a day…
Four energy rules:
Know your energy market
Depending on one’s location, facility managers may have several options from which to choose in formulating their energy supply. While oil supply and demand is one of the driving forces in the overall energy market, commercial facility managers are much more interested and impacted by the price of both natural gas and to and even greater extent, the price of electricity. The first rule in formulating an overall energy budget and plan is to know your energy market…
Know your energy goals: Budget certainty versus cost minimization
The two are not always mutually exclusive, however in developing and energy budget the individuals in charge of the decision-making will often be required to choose one versus the other…
Know your data
Information is power. At a minimum, a facility manager should have at his fingertips 12 months worth of utility invoices. Historical data provides several benefits to the facility manager. First and most obvious, it affords a measuring stick from which to gauge any decision regarding supply options and pricing. That data can demonstrate which of the available choices may provide the largest savings or cost minimization. Further, it allows the facility manger the ability to develop budgets. In addition, historical data can be used to evaluate various demand-side options that are under consideration by evaluating the impact of those options on the overall energy costs…
Seek advice
The energy industry has become more complex over time for a myriad of reasons, including the globalization of society, the ever-increasing reliance on foreign sources of supply, geopolitical issues, the opening of the natural gas market within the United Sates and the deregulation of electronic marketing in various states. What has further compounded the complexity and importance of this market it the ever-increasing cost of energy…
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