October 2017: Wholesale gas prices stay steady year on year while wholesale electricity prices down by 17% compared with October 2016

Keith Donnelly

Keith Donnelly

Senior Energy Analyst
02/11/2017

November 2017

Following a volatile September, Irish wholesale gas and electricity prices stabilized over the month of October as traditional seasonal factors influenced prices rather than exceptional items that impacted wholesale prices last month. Both Irish wholesale gas and wholesale electricity prices dropped by 1% compared to last month. However, the average wholesale price of electricity is down by 17% compared with October 2016 due to unusually high prices this time last year. Wind energy generated 34% of overall electricity generation on the island of Ireland, compared with 28% last month. The Corrib gas field came back online on 12th October following a three week closure – a closure that was initially thought to have taken just two to three days.

The month of October began with gains on the prompt market as prices rose 9% followed by a further 4% on the opening two days, however these were mostly driven by a market correction following unsupported losses on the final trading day of the 2016/2017 gas year. Despite this, gains have continued through the opening week of the month driven by fluctuations in Norwegian supplies due to maintenance. Since then prices have remained consistent, on a slow and steady upward trend, a typical feature of gas prices in the winter season.

Additional bullish sentiment is being felt as sterling has lost ground when compared to the Euro on the back of some comments from the Bank of England (BoE). A BoE official seemed to dampen expectations of an interest rate increase in November causing sterling to weaken. BoE Deputy Governor Sir Jon Cunliffe stated that the “economy had already slowed” and that the time to increase interest rates was not imminent.

Commenting on the report Vayu Senior Energy Analyst, Keith Donnelly, said: “Following a very volatile September we have seen a return to traditional seasonal price movements this month. The impact of the imminent closure of the Rough Storage facility will need to be monitored in the coming weeks especially if an extended cold snap takes place. Until that happens you can expect to see an overall slow and steady increase.

The majority of fundamentals are bearish for the energy markets. LNG is providing a flexible source of supply keeping gas prices suppressed, while strong wind generation is doing the same on power markets.

Looking further ahead, storage in North-West Europe is still a concern. One needs to look at storage levels four borders away from the UK to find a hub with excess storage compared to levels recorded this time last year. This could result in a large premium in Q1-18 of up to and, perhaps, even in excess of 5p to encourage gas to flow to the UK if there is a supply shortage as a result of a lack of storage.”

Market overview

In euro terms, Irish wholesale gas prices are 8% cheaper compared with the average monthly price recorded for October over the previous three years (2014-2016).

The retired Rough storage facility began producing the last of its production gas. Flows from the facility are less than 25% of its max capacity and are expected to remain constant until the gas is depleted, something that could take as little as 75 days.

The average day ahead price for gas, the contract for gas delivery tomorrow, is 1.73 c/kWh (cents per kilowatt hour) for October. This compares with an average price of 1.64 c/kWh in October 2016.

Electricity and Wind Energy Update

The average wholesale price of electricity in the Irish market in October is 4.49 c/kWh, a decrease of 17% compared with September 2016 and down 1% on last month. Prices have remained constant following a strong September, with a saving compared to 12 months ago due to unusually high prices last October and November.

Total wind generation capacity in Ireland still stands at 3,916 MW. However this month wind energy has accounted for approximately 34% of overall electricity generation on the island of Ireland, compared with 28% last month. Wind generation peaked at 3,074 MW on 21st of October. This peak generation had the potential to meet 63% of total electricity demand on the island of Ireland at that time.