February 2015 Energy Market Report: Wholesale Gas Prices Up 9%

  •  9% month-on-month increase in wholesale gas prices
  • Increase driven by higher year-on-year demand and concerns over North Sea supply
  • Compared with February 2013, wholesale gas prices still down 16% in euro terms
  • Wholesale electricity prices up 19% month on month and 3% year-on-year.

Monday, 2nd March 2015: Average wholesale gas prices increased by 9% in February compared to January according to the latest Wholesale Energy Market Report by Irish gas and electricity supplier Vayu Energy. The company, which supplies gas to over 20% of Ireland’s industrial and commercial market, states that recent upward pressure on gas prices has resulted from higher year-on-year demand, concerns over North Sea supply earlier in February and heightened tension between Ukraine and Russia.

Despite the month on month increase, average wholesale prices for February were still down by 15% year on year and down 27% compared to February 2013. Changes in price are based on the Day-ahead gas commodity contract procured on the UK NBP gas market, the source from which natural gas in Ireland is purchased, and are quoted in sterling pence per therm (the unit of tradable gas energy).

Day-ahead prices – the contract for gas delivery for tomorrow – finished trading on Friday (27th February) at 51.5p while average prices for February as a whole stood at 50.4p compared with 46.1p for January (up 9%). For contracts due to expire further out this year, the recent strengthening in wholesale prices is being offset by a positive outlook for gas supply boosted by increased shipments of LNG (liquefied natural gas) from major suppliers. Europe is quickly becoming a prime market for LNG ahead of the usually more expensive Asian gas hubs.

“While demand levels for gas are higher year on year, this is more a reflection of how significantly low demand was in 2014,” says Joanne Daly, Senior Energy Analyst at Vayu. “An increase in underlying demand from the power sector is being met by a wide range of supply options with an influx of LNG cargoes expected over the coming weeks. This will help offset the upward pressure on prices experienced during February due to a reduction in North Sea output.”

Ms Daly notes that, despite the increase in wholesale gas prices in February, the overall drop since 2013 has had a significant impact on the energy costs of many Irish businesses, particularly in the industrial and commercial segment. Factoring in fixed costs, such as gas network and regulated fees, these businesses would have seen reductions of up to 9.5% in euro terms since February 2013.

Commenting on the ongoing tensions between Russia and Ukraine, Ms Daly states that gas supply from Russia this winter has flowed without disruption following an interim deal (at the end of October 2014) to provide Ukraine with access to natural gas supplies up until March on a prepayment basis. However, heightened tensions and uncertainty over gas supplies have recently re-emerged when Russian utility Gazprom said it could cut off gas supply to Ukraine if Kiev fails to pay for deliveries. 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.

Electricity Update

The average wholesale price of electricity in the Irish market so far in February is 6.15 c/kWh – an increase of 19% on the average in January and up 3% compared to February 2014.  The month-on-month increase in electricity prices is largely due to lower wind generation in February and a month-on-month increase in gas prices, which is significant as generation of electricity in Ireland relies heavily on gas generating plants and is the main fuel used in the generation fuel mix.

Wind energy accounted for 21% of overall electricity generation in Ireland in February. Some 4,908 gigawatts of wind energy have been generated since the start of the year, representing 27% of total electricity demand for the country during this period. Wind generation in February reached a peak of 1,969 MW on the 23rd February when it accounted for 46% of demand at the time.