Natural Gas Prices Turn Up Heat on Energy Conservation

By Steve Kiesner Director of National Accounts, Edison Electric Institute | May 04, 2010

For hotel executives, knowing how a hotel uses energy is the first step toward knowing where to start conserving. Water heating alone, for example, accounts for almost 40 percent of a hotel's total energy cost, and two thirds of its natural gas use.

Perhaps surprisingly, the local electric company can help improve a hotel's energy efficiency. Power companies offer energy-saving advice, and many times programs and services, to improve a hotel's overall energy efficiency. These improvements will lead to greater control over a hotel's electricity-and its natural gas-use. They will also help to make the nation's electricity system more reliable and affordable as well.

Natural Gas Supplies Pushed to Limit

In 2003, natural gas prices averaged 60 to 65 percent above those in 2002. Forecasts for 2004 and beyond show that high prices will be sticking around. There is mounting evidence that, after 20-30 years of intensive development, output from some of the largest gas fields in the United States and Canada has reached a plateau. More than twice as many new wells were drilled between mid-2000 and mid-2001 than just two years prior, with almost every available rig in North America actively deployed in the field. Even with this massive increase in development activities, natural gas production never rose by more than 1.4 billion cubic feet per day-an increase of about 2.7 percent. Environmental restrictions and moratoria on gas drilling activity, which are increasing rather than decreasing, will further limit U.S. production levels in the near term.

Given this demand-supply imbalance, higher prices have been the inevitable result. A cold December has pushed natural gas spot prices to $6.711 per MMBtu for January 2004. For the past 15 years, gas prices have mostly stayed below $2.50 per million British thermal units (MMBtu). Some experts predict that natural gas prices will average $5.70 per MMBtu (in constant 2002 dollars) for the next two years and then generally decline to a level around $4.50 per MMBtu for the next 18 years.

Short Term Recommendation: Improve Energy Efficiency

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Eco-Friendly Practices: Corporate Social Responsibility

The hotel industry has undertaken a long-term effort to build more responsible and socially conscious businesses. What began with small efforts to reduce waste - such as paperless checkouts and refillable soap dispensers - has evolved into an international movement toward implementing sustainable development practices. In addition to establishing themselves as good corporate citizens, adopting eco-friendly practices is sound business for hotels. According to a recent report from Deloitte, 95% of business travelers believe the hotel industry should be undertaking “green” initiatives, and Millennials are twice as likely to support brands with strong management of environmental and social issues. Given these conclusions, hotels are continuing to innovate in the areas of environmental sustainability. For example, one leading hotel chain has designed special elevators that collect kinetic energy from the moving lift and in the process, they have reduced their energy consumption by 50%  over conventional elevators. Also, they installed an advanced air conditioning system which employs a magnetic mechanical system that makes them more energy efficient. Other hotels are installing Intelligent Building Systems which monitor and control temperatures in rooms, common areas and swimming pools, as well as ventilation and cold water systems. Some hotels are installing Electric Vehicle charging stations, planting rooftop gardens, implementing stringent recycling programs, and insisting on the use of biodegradable materials. Another trend is the creation of Green Teams within a hotel's operation that are tasked to implement earth-friendly practices and manage budgets for green projects. Some hotels have even gone so far as to curtail or eliminate room service, believing that keeping the kitchen open 24/7 isn't terribly sustainable. The May issue of the Hotel Business Review will document what some hotels are doing to integrate sustainable practices into their operations and how they are benefiting from them.