November 2014 Energy Market Report: Gas Prices Up 6% in November but Down Year-on-Year

IRISH WHOLESALE GAS PRICES UP 6% IN NOVEMBER BUT REMAIN 20% LOWER YEAR ON YEAR

  • Monthly rise in gas prices due to seasonal increase in demand
  • Gas inventories across major European hubs above 90% fullness
  • Wholesale electricity prices down 14% year-on-year

Monday, 24th November 2014: Average wholesale gas prices for November are up 6% compared to last month, driven mainly by a seasonal increase in consumer heating demand and a number of supply disruptions in Norwegian gas fields according to the latest Wholesale Energy Market Report by Irish energy supplier Vayu. Despite this, gas prices are still 20% lower compared to this time last year.

Suppressed demand due to warmer than normal weather conditions has been a major driver of lower gas prices over the course of the year with European gas demand down significantly year to date. This, combined with a surplus of shipments of LNG (liquefied natural gas) and weak Asian demand, has resulted in strong storage positions across major European hubs. Total storage is now at 92% capacity in the UK – the major source of gas supply into Ireland – while storage levels in Germany are at 99% fullness.

Prices for next-day gas delivery finished trading on Friday (21st November) at 56.1p, down 15% since the start of the year. This weakness has also fed into the lower pricing of gas for December and for the first quarter of 2015. Meanwhile falling oil prices and weak economic data from Asia and the eurozone are contributing to downward pressure on longer term gas contracts in the wholesale market.

Gillian Lawler, Senior Energy Analyst at Vayu states that strong levels of gas supply and a very positive storage outlook as winter approaches means wholesale prices are likely to remain considerably lower year on year if current fundamentals persist.

“Compared to this time last year, we’re seeing significant downward pressure on winter contracts on foot of reduced demand and the prospect of increased LNG shipments into Europe due to an overhang of supplies in Asia,” she says. “And, while any significant drop in temperatures during the winter would affect demand and have a knock-on effect on prices, the general strong health of the system should minimise any impact. With this in mind it seems it would take a significant event to drive prices up for a prolonged period of time.”

Ms Lawler notes that there is also an expectation of continued gas flows from Russia this winter without disruption following a natural gas supply deal reached between Russia and Ukraine at the end of October. The interim deal provides Ukraine with access to natural gas supplies from Russia during the winter period (up until March 2015) on a prepayment basis, and means gas supplies delivered into other European countries via Ukraine are now more secure. 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.

However, Ms Lawler states: “While the deal between Russia and Ukraine has removed a significant risk premium from the gas market, any further political instability or escalation in tensions would result in upward pressure on price, as would a decision to impose further EU sanctions.”

Electricity Update

The average wholesale price of electricity in the Irish market so far in November is 5.82c/kWh – up 2% from the average in October and down 14% compared to November 2013.  The month-on-month rise in electricity prices is largely due to an increase in seasonal demand as we enter the colder winter period and also due to rising wholesale gas prices, the main fuel used to generate electricity in Ireland.

Wind energy has made a substantial contribution toward overall electricity generation in Ireland so far this year. Over 17,066 gigawatt hours (GWhs) of wind energy has been generated since the start of the year, representing 19% of total electricity demand for the country during this period. Month on month, wind generation is up so far in November, reaching a peak of 1,646 MW on the 6th November when it accounted for 46% of demand at the time.