Monday, 28 November 2016: In euro terms, Irish wholesale gas prices increased 8% on average so far in November compared to November 2015, according to the latest Wholesale Energy Market Report published by Naturgy Energy. The average wholesale gas price is up 15% this month compared to last month. Increased demand and limited LNG (liquefied natural gas) supply during October and November led to the higher prices. However, the strength of the euro against sterling managed to mitigate some of the upward moves seen on the NBP*.
The average day-ahead price for gas, the contract for gas delivery tomorrow, is 1.88 c/kWh (cents per kilowatt hour) for November so far. This compares with an average price of 1.74 c/kWh in November 2015. In euro terms, Irish wholesale gas prices are 18% lower compared with the average monthly price recorded for November over the previous three years (2013 – 2015).
Total gas in storage in the UK remains at around 52%. British utility Centrica announced earlier in the month that there would be a further delay to the restart of its Rough gas storage site. Two thirds of the site’s capacity was expected to come back online on November 1st. However the company said it was still conducting preparatory works and reinstatement testing to enable gas withdrawals from the facility. Restart is now expected at some stage later in November. The extended restart raises the prospect of higher gas prices during the winter period. The Rough facility usually meets around 10% of demand during winter.
Commenting on the outlook ahead, Joanne Daly, Senior Energy Analyst at Naturgy Energy said: “Two LNG vessels are expected to arrive in the UK in the coming days which should bolster LNG send-out. A third cargo is expected to be on its way to Europe also, with a possible destination being the UK on December 1. Although these numbers are an improvement on that seen in October, LNG deliveries will have to increase further in order to put significant downward pressure on prices.
Looking further ahead into 2017, traders have noted there is a lot of uncertainty around available supply at the start of next year. If temperatures remain around seasonal norms, the outlook is relatively stable. However, higher than expected demand, coupled with continuing low LNG deliveries could hold up prices during Q1. The trend of low LNG deliveries could continue because, with many other gas markets indexed to NPB, LNG sellers can sometimes starve the UK of LNG in order to elevate prices, which in turn elevates the price that buyers of LNG are willing to pay in these other markets. However, something that could limit the impact of this is US LNG. The current price differential between the NBP and its US counterpart the Henry Hub, if it continues, will allow for full cost recovery of liquefaction and voyage costs for US shipments into Europe. This is perhaps a good sign that NBP prices have reached their ceiling”.
Contracts also remain sensitive to Brent oil moves. As such, the results of the 30 November meeting of OPEC and non OPEC members will be important for contracts for delivery next year and beyond. If an agreement to reduce oil output is reached, oil prices are likely to firm. This in turn could push up gas prices on the far curve. However, if a firm decision to reduce output is not made it is possible we could see Brent weaken further as plenty of new oil supply appears to be on its way to the market” said Joanne Daly.
Electricity and Wind Energy Update
The average wholesale price of electricity in the Irish market so far in November is 5.49 c/kWh, an increase of 16% compared with November 2015 and up 2% compared with last month. The year on year gains are largely attributed to the substantial increase of gas prices over the same period.
Total wind energy capacity in Ireland now stands at 3,174 MW. Wind energy accounted for 22.5% of overall electricity generation on the island of Ireland so far in November, reaching a peak of 2,589 MW on 11 November having the potential to meet over 45% of total electricity demand on the island of Ireland at that time.