March 2016 Market Energy Report: Irish wholesale gas prices down by 41% in March compared with last year

  • Wholesale gas prices at 6-year lows, driven by abundant supply and stronger euro
  • 31%  drop in Irish wholesale electricity prices for March year-on-year
  • 19% of total electricity demand in Ireland met by wind energy so far this month 

Tuesday, 29th March 2016: Irish wholesale gas prices are 41% lower on average so far in March compared with March 2015 and down 38% year on year for the first quarter, according to the latest Wholesale Energy Market Report published by Naturgy Energy. While prices are unchanged compared with February, they remain at lows not seen since April 2010. Naturgy energy, which supplies gas to over 20% of Ireland’s industrial and commercial market, states that the collapse in prices is due to an abundant supply of gas in Europe and a significant strengthening in the value of the euro over the last year.

The average day-ahead price for gas – the contract for gas delivery for tomorrow – is 1.31 c/kWh (cents per kilowatt hour) so far in March. This compares with an average price of 2.23 c/kWh in March 2015. Irish wholesale gas prices have now over halved in euro terms (down 51%) compared with the average monthly price recorded for March over the previous three years (2013-2015). This has had a significant impact on the energy costs of many Irish businesses purchasing gas on the wholesale market, particularly for users in the industrial and commercial segment.

Joanne Daly, Senior Energy Analyst at Naturgy states that the gas market remains oversupplied this month with strong supplies of LNG (liquefied natural gas) from the Middle East expected to continue as we approach the summer months. Ms Daly notes that April traditionally sees strong LNG imports into the UK, the source from which Ireland purchases most of its natural gas.

“An oversupply of gas and weak demand mean Europe’s inventory levels are significantly above normal for this time of year. This, combined with an 8% strengthening in the value of the euro against sterling over the last twelve months, has resulted in a dramatic collapse in wholesale prices,” says Ms Daly. “New volumes of LNG this year from the US and Australia and seasonal falls in demand are likely to result in further downward pressure on prices. There’s therefore limited risk of significant price increases in the near term, barring any unplanned outages.”

Commenting on the impact of oil on longer term gas prices, Ms Daly notes that unrest in Turkey and Iraq has created price volatility on the Brent crude oil market in recent weeks. She says: “Oil prices are likely to continue to influence longer term gas contracts, with the market awaiting the outcome of a meeting between OPEC and major non-OPEC members scheduled to take place on 17 April. A decision to freeze production could provide significant upward support to the oil market which in turn could result in higher wholesale prices for gas contracts.”

Ms Daly notes that the majority of natural gas consumed in Ireland is currently sourced from the UK wholesale gas market*. With the Corrib gas field recently becoming operational, Ireland’s dependence on imported gas will reduce significantly with the field expected to meet approximately 56% of forecasted demand this year.  During days of low demand, such as the summer months, Corrib is projected to meet the full gas requirements of the country. On days of greater demand, additional gas supplies will continue to be available from the UK via the Moffat Interconnection point.

Electricity and Wind Energy Update

The average wholesale price of electricity in the Irish market so far during March is 3.71 c/kWh – a decrease of 31% compared with March 2015 and unchanged 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. A strong contribution of renewable sources such as wind has also been a significant factor.

Ms Daly notes that increased wind energy now plays an ever more important role in meeting Ireland’s electricity demand, helping to drive down prices and reduce the country’s dependence on more expensive sources of energy. Total wind generation capacity in Ireland now stands at 3,078 MW. Wind energy has accounted for 19% of overall electricity generation so far during March, reaching a peak of 2,569 MW on the 2nd of March when it met 50% of demand at the time. Some 8,877 gigawatt hours (GWh) of wind energy has been generated in Ireland since the start of the year, representing 25% of total electricity demand during this period

Note: As part of EU Renewable Energy Directive (2009/28/EC), Ireland’s target is for 16% of total energy consumption to come from renewable sources by 2020. Electricity generation from renewable sources has a sub-target of 40% in order to meet that 16%, and renewable transport and renewable heat have their own sub targets. In order to meet these, a sizable amount of renewable energy needs to be added to the fuel mix.