2014 Annual Energy Market Report: Irish Wholesale Gas Prices Down 27% in 2014

  • Irish businesses benefiting from a year-on-year fall in wholesale gas prices      
  • Drop in prices driven by strong gas supply, suppressed demand and high storage inventories
  • Wholesale electricity prices down 14% compared to 2013

Monday, 29th December 2014: The cost of buying natural gas on the wholesale market dropped dramatically over the last twelve months, with average wholesale prices during the year down 27% compared with 2013, according to the 2014 Wholesale Energy Market Report by Irish energy supplier Vayu.

The company, which supplies gas to over 20% of Ireland’s industrial and commercial market, states that suppressed demand and strong supplies have been a consistent driver of lower wholesale gas prices throughout the year. This has had a significant impact on business energy overheads linked to wholesale gas prices.

As a result of warmer-than-expected weather conditions, gas demand in Europe has been consistently lower than average this year largely due to reduced gas consumption for heating and power generation. This has contributed to strong stock-piling across all of Europe’s main gas hubs, boosted by significantly increased shipments of LNG (liquefied natural gas) from major suppliers such as Qatar.

In spring 2014, prices were down on average 32% year on year and declined further during the summer months despite a risk premium due to tensions between Russia and Ukraine. By July, prices hit a four-year low and were down 42% year on year. Toward the end of the year, prices increased due to seasonal factors and higher demand; however, they were still down in autumn some 23% year on year.

Toward the end of December, day-ahead prices – the contract for gas delivery for tomorrow – traded at 53.35p, almost 22% lower than at the same point in 2013. This weakness continues to feed into the lower pricing of gas for the first quarter of 2015 and other contracts due to expire further out next year. Meanwhile weak economic data and a sharp drop in crude oil prices in recent months are contributing to downward pressure on longer term gas contracts in the wholesale market.

Joanne Daly, Senior Energy Analyst at Vayu says the drop in energy prices in 2014 has had a significant impact on the energy costs of many Irish businesses over the last twelve months. Taking fixed costs into account (such as gas network and regulated fees), large industrial and commercial businesses would typically have seen reductions of 9–18% for the year as whole.

Toward the end of 2014, total storage was at 86% capacity in the UK – the major source of gas supply into Ireland. Total storage across other major European hubs was above 79% fullness. Ms Daly says: “The outlook for gas supply remains very positive heading into 2015. If mild weather conditions prevail in first quarter and there are few unplanned outages, we could enter next summer with record high storage levels. This will have a direct impact on gas prices.”

Commenting on the ongoing tensions between Russia and Ukraine, Ms Daly says: “A dark cloud of supply risk loomed over Europe throughout most of 2014, driven by a potential cut in Russian gas supply through Ukraine. Fortunately, this did not materialise and gas flows to Ukraine have been stable toward the end of 2014. However, the market is keeping a close eye on the situation as we enter 2015 and continue to factor in a geopolitical risk premium.”

Ms Daly notes that, following a deal reached between Russia and Ukraine at the end of October 2014, supplies delivered into Europe via Ukraine are expected to continue this winter without disruption. This is of significant importance given Ukraine is a major transit corridor for Russian gas to European markets, with Russia providing approximately a third of Europe’s gas demand – half of that coming via Ukraine. Any further political instability or escalation in tensions could, however, result in upward pressure on prices.

 

2014 Electricity and Renewables Update

The average wholesale price of electricity in the Irish market for 2014 was 5.67c/kWh – down 14% from the average in 2013. Electricity generated from oil and gas plants is expected to become cheaper to produce in 2015 and could feed through to wholesale electricity prices. The continuing integration of wind energy onto the grid will also assist in reducing the amount of gas fired generators used to produce electricity which is typically more expensive than that generated from renewable sources.

Wind energy has made a substantial contribution toward overall electricity generation in Ireland to date in 2014. Over 19,900 gigawatt hours (GWhs) of wind energy has been generated since the start of the year, representing over 19% of total electricity demand for the country during this period. Wind generation this year, reaching a peak of 1,826 MW on the 21st December when it accounted for almost 52% of demand at the time.

“We are continuing to see wind energy play an ever more important role in meeting Ireland’s electricity demand,” says Ms Daly. “This will continue to grow over the coming years in light of an agreement by EU leaders to set a 27% target for energy consumption from renewable sources by 2030. Wind energy will be the primary source of this in Ireland, requiring the installation of substantial additional wind generation capacity between now and then.”