- Wholesale gas prices at 6 year lows
- Dramatic drop in oil prices impacting on longer term gas contracts
- 14% decrease in Irish wholesale electricity prices year-on-year
- 22% of total electricity demand in Ireland met by wind energy so far this month
Monday, 25th January 2016: Irish wholesale gas prices are 29% lower on average so far in January compared with January 2015 and 4% lower compared with last month, according to the latest 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 the year-on-year decrease in prices is due to strong supplies, mild weather conditions this winter and a healthy storage outlook.
The average day-ahead price for gas – the contract for gas delivery for tomorrow – is 1.50 c/kWh (cents per kilowatt hour) so far in January. This compares with an average price of 2.07 c/kWh in January 2015. Irish wholesale gas prices are now 40% lower (in euro terms) compared with the average monthly price recorded for January over the previous three years (2013-2015). This has had a significant impact on the energy costs of many Irish businesses purchasing gas on the wholesale market, particularly in the industrial and commercial segment.
Joanne Daly, Senior Energy Analyst at Vayu says: “Bearish sentiment has taken a firm hold of the market with gas prices continuing to experience a significant downward price pressure as a result of continued strong supply from Norwegian and UK pipeline sources in the North Sea. Overall, there is little fundamentally to suggest any significant shift in prompt prices is on the way. However, considering previous years, it is important to remember that it is still possible for market conditions to change quickly”.
Ms Daly says: “With Brent Crude tumbling to multi-year lows, longer dated contracts influenced by oil are significantly weaker over the next six months and further out. Additional production from Iranian oil fields which are due to come online this year will add further to a glut in global supply. Coupled with weaker demand from China, this means oil prices are unlikely to recover anytime soon. The current forward outlook is therefore looking bearish.”
Corrib Gas Field
The Corrib gas field off the coast of Mayo is operational since the end of December and is expected to start supplying the Irish network later this year. Currently Ireland imports approximately 95% 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 is 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.
Electricity and Wind Energy Update
The average wholesale price of electricity in the Irish market so far during January is 4.22 c/kWh – a decrease of 18% compared with January 2015 and down 1.2% compared with last month. The drop in prices is attributed mainly to lower prices for gas combined with a strong contribution of renewable sources such as wind.
With the Irish economy forecast to grow by 4.1% this year (according to the OECD), an increase in peak demand will be a factor impacting on costs in 2016. However, improving efficiencies in energy generation and usage means 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.
Increased 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. Total wind generation capacity in Ireland now standing at 3,042 MW. Wind energy accounted for 22% of overall electricity generation so far during January, reaching a peak of 2,478 MW on the 6th of January when it met 69% of demand at the time.
Ms Daly notes that, as part of EU Renewable Energy Directive (2009/28/EC), Ireland’s 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.