August 2016 Market Energy Report: 35% Drop in Irish Wholesale Gas Prices Year on Year

  • Collapse in wholesale gas prices due to on-going over supply and weak demand
  • 5% decrease in wholesale electricity prices in August compared to last month
  • Wind energy accounted for 24% of overall electricity generation so far in August. 

Monday, 29 August 2016:  In euro terms, Irish wholesale gas prices are 35% lower on average this month compared to August 2015, according to the latest Wholesale Energy Market Report published by Naturgy Energy. These losses continue to be attributed to on-going healthy supply, decreased demand year on year and the price drop in oil.  Gas prices are down 10% month on month, as we are in the period of lowest demand of the year.

The average day-ahead price for gas, the contract for gas delivery tomorrow, is 1.25c/kWh (cents per kilowatt hour) for August so far.  This compares with an average price of 1.90c/kWh in August 2015.

Commenting on the outlook for the remainder of the year, Gillian Lawler, Senior Energy Analyst at Naturgy said that abundant supply continues to be the main driver of gas prices for delivery next month, and there may be a further downside to winter prices as sterling continues to perform poorly against the euro, which is good news for euro backed traders.

“Updated storage figures show European stocks are extremely healthy.  In addition, the recent update from Centrica that its Rough storage facility, which houses 70% of the UK’s storage capacity,  will have 20 wells available for withdrawals from November 1st is also good news.  This accounts for two thirds of wells at the facility, a significant improvement to earlier expectations of just 4 wells being available to year end.

LNG (liquified natural gas) deliveries have been disappointing however as producers have engaged in competitive tactics to bolster global prices.  Cargoes have been diverted from Europe to keep prices elevated to avoid the LNG market crashing altogether.  Continued output problems in some countries have added to the lack of arrivals to the UK.  Qatar has been sending cargoes below market value to Japan and India, and the US is sending cargoes to non-European markets also.  It looks like 16% of global LNG production will have come to Europe by the end of 2016, below some forecasts.  However, the deliveries into Europe are still up 20% year on year.

In the meantime, pipeline gas is making up for unpredictable LNG availability.   The Norwegian Petroleum Directorate has increased expected natural gas demand for September.  Supply from Norway has been key so far this year as LNG deliveries disappointed, and has out-produced its original forecasts for the year”.

Electricity and Wind Energy Update

The average wholesale price of electricity in the Irish market during  August is 3.6c/kWh – a decrease of 27% compared with August 2015 and down 3.5% compared with last month. The year-on-year drop in prices is attributed mainly to lower prices for gas, which is the main energy source used to generate electricity in Ireland.

Total wind generation capacity in the island of Ireland now stands at 3083MW.  Wind energy accounted for 24% of overall generation in August (as of 25/08/2016), reaching a peak of 2313MW on 03 August, having the potential to meet over 52% of total electricity demand on the island of Ireland at that time.  Some 18,917 gigawatt (GW) of wind energy has been generated since the start of the year, representing 21% of total electricity demand on the island of Ireland during this period.