April 2017: Irish Wholesale Gas Prices Increase by 25% Compared With April 2016

Closure of UK storage facility to impact winter 2017 wholesale energy prices

The Naturgy monthly energy report for April 2017 shows that Irish wholesale gas prices are 25% higher (in euro terms) compared with the average monthly price recorded for April 2016. This a significant increase despite a small drop in energy prices over the last month (2% drop in wholesale gas, no change in wholesale electricity). However, Naturgy has warned that the announcement of the closure of the UK’s largest gas storage facility will have a significant impact on the wholesale prices of gas in Ireland this winter.

Commenting on the report Naturgy Senior Energy Analyst, Keith Donnelly, said: “The announcement that the Rough Storage facility in the UK will close until April 2018 will impact gas wholesale prices for next winter. Research has shown that, when operational, the Rough Storage facility reduces the levels of volatility in the market. Volatility can have a significant impact on Irish businesses and we have seen many of our customers taking advantage of the current price to insure themselves against this potential threat.

Mr. Donnelly added: “In general, the increased prices are a return from what was an unsustainable low that the market could not continue to operate at. The weaker pound has insulated Irish businesses from a far more dramatic increase, however if the pound continues to strengthen, Irish energy prices will continue to increase.”

Market overview

Irish wholesale gas prices are 25% higher on average this month compared with April 2016. Prices recovered from a year that witnessed multi-year price lows, and what were unsustainable price levels that producers, and the market in general, could not operate at. Prices over the last two months seem to have found a natural floor and the resistance to push lower may be difficult to break. Despite recent rallies in FX markets, and the strength the pound gained from Theresa May’s actions, sterling is still 7% weaker than this time last year, helping off-set larger gains on the NBP. In sterling terms prices rose by 34%, compared with a much lower 25% rise when converted to euro

The average day-ahead price for gas, the contract for gas delivery tomorrow, is 1.59 c/kWh (cents per kilowatt hour) for April so far. This compares with an average price of 1.27 c/kWh in April 2016. Irish wholesale gas prices are 14% lower (in euro terms) compared with the average monthly price recorded for April over the previous three years (2014-2016).

Electricity and Wind Energy Update

The average wholesale price of electricity in the Irish market so far in April is 4.52 c/kWh, an increase of 24% compared with April 2016 and flat compared with last month. The year on year gains can be largely attributed to the substantial increase of gas prices over the same period, while gas and electricity prices seem to have found a new support level.

Total wind generation capacity in Ireland now stands at 3,736 MW. Wind energy has accounted for approximately 18.2% of overall electricity generation on the island of Ireland so far this month, reaching a peak of 2,738 MW on 3 April. This peak generation had the potential to meet over 57% of total electricity demand on the island of Ireland at that time.