2015 Vayu Annual Energy Report: 23% DROP IN IRISH WHOLESALE GAS PRICES IN Q4 2015 COMPARED WITH LAST YEAR

  •  Irish businesses benefiting from 5-year lows in wholesale gas prices
  • 9.4% drop in Irish wholesale electricity prices on average in 2015 compared with 2014
  • 23% of total electricity demand in Ireland met by wind energy in 2015

 

Tuesday, 29th December 2015: The cost of buying natural gas on the wholesale market dropped significantly toward the end of the year,  Wholesale Energy Market Report published by Vayu Energy.

The company, which supplies gas to over 20% of Ireland’s industrial and commercial market, states that surging gas supplies and suppressed demand have been consistent drivers of declining wholesale gas prices during the year. This has had a marked impact on energy costs for Irish businesses purchasing gas on the wholesale market. For the year as a whole, Irish wholesale gas prices are down 4.7% compared with 2014 and down 18% compared with the average price recorded over the last three years (2012-2014).

From the start of 2015, healthy supply in the market was a major factor contributing to a steady decline in wholesale gas prices. Downward pressure on prices continued for most of the year with notable exceptions for the months of February and July. During February, prices were driven up by 13% month-on-month as tensions in Ukraine escalated and concerns over North Sea supply emerged. While in July, average prices increased by 2% month on month in response to increased gas demand due to a heatwave in southern Europe.

By October, gas prices were down 15% year on year, however, and fell further in November (down  25% year on year) with bearish sentiment taking a firm hold of the market on foot of a surge in Norwegian gas exports and lower weather-driven demand. Downward price pressure continued into December with average prices down 29.6% compared with December 2014.

The average day-ahead price for gas – the contract for gas delivery for tomorrow – now stands at 1.64 c/kWh (cents per kilowatt hour) for the month of December. This compares with an average price of 2.32 c/kWh in December 2014. A fall in the value of the euro against the pound sterling over the last twelve months masked an even greater drop in prices on the UK wholesale gas market, the source from which Ireland purchases its natural gas. Prices this month are down 35% in sterling terms year on year, reaching five-year lows.

Gillian Lawler, Senior Energy Analyst at Vayu states that exceptionally mild temperatures across Europe means that gas demand for this time of year has fallen to lows not seen in ten years, despite gas having overtaken coal as the fuel of choice for the power generation sector. This is being compounded by increased gas supplies including an abundance of shipments of LNG (liquefied natural gas), which accounted for approximately 15% of the gas supply mix in 2015 (up from 13% in 2014). Strong supplies of LNG from the Middle East are set to persist into 2016, driven by weak demand in Asian gas markets.

 “Healthy supply and a positive storage outlook are resulting in continued downward pressure on gas prices into the first half of next year,” says Ms Lawler says. “Contracts for gas supply in Q1 2016 are now trading 31% lower compared to the first quarter of this year and only a weather correction or a series of unplanned outages likely to result in prices firming.”

 “With prices for Brent Crude hitting 11-year lows, longer dated contracts indexed to oil are significantly weaker for next summer and further out. Additional production from Libya and Iran is also due to come online early next year, adding further to global supply which means oil prices are unlikely to recover anytime soon. It’s therefore looking like a bearish first half of 2016 at least for now.”

Corrib Gas Field

The Corrib gas field off the coast of Mayo is expected to commence supplying the Irish network in early 2016. Currently Ireland imports 93% of its gas requirements from the UK. During days of low demand, such as the summer months, Corrib is projected to meet the full gas demand of the country. The gas field expected to meet approximately 56% of forecasted annual demand in its first year of production, thereby greatly enhancing Ireland’s security of energy supply. On days when Corrib is unable to solely meet Ireland’s gas requirement, additional gas needed will continue to be available from the UK via the Moffat Interconnection point.

2015 Electricity and Wind Energy Update

The average wholesale price of electricity in the Irish market for 2015 was 5.12c/kWh – down 9.4% from the average price recorded in 2014. (This is in addition to a drop of 14% in 2014 compared with 2013.) The drop in prices is attributed to strong wind generation and lower prices for gas, which is the main energy source used to generate electricity in Ireland.

An increase in peak demand will be a factor in 2016 with the Irish economy forecast to grow by 4.1% next year according to the OECD. However, improving efficiencies in energy generation and usage mean that proportionately less energy is required as the economy grows. Higher demand is also expected to be offset by higher integration of renewables on the grid in 2016.

Wind energy has made a substantial contribution toward overall electricity generation to date in 2015 with total wind generation capacity on the island of Ireland now standing at 3,042 megawatts (MW). Some 30,995 gigawatt hours (GWh) of wind energy has been generated since the start of the year (up to 19th December 2015), representing over 23% of total electricity demand during this period. Wind generation reached a peak of 2,514 MW on the 7th January when it accounted for over 48% of demand at the time.

Ms Lawler notes that wind energy is playing an ever more important role in meeting Ireland’s electricity demand, helping to drive down prices and reduce the country’s dependence on more expensive sources of energy. As part of EU Renewable Energy Directive (2009/28/EC), Irelands target is for 16% of total energy consumption to come from renewable sources by 2020. Electricity generation from renewable sources has a sub-target of 40% in order to meet that 16%, and renewable transport and renewable heat have their own sub targets. In order to meet these a sizable amount of renewable energy needs to be added to the fuel mix.


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