October 2014 Energy Market Report: 4% Increase in Gas Prices

Irish wholesale gas prices up 4% in October but remain 23% lower year on year

  • Monthly increase in gas prices due to seasonal increase in demand and unplanned outages
  • Gas inventories across Europe very robust at over 90% fullness
  • Wholesale electricity prices down 7% year-on-year

Tuesday, 28th October 2014: Average wholesale gas prices for October are up 4% compared to last month on foot of a seasonal increase in demand and a number of unplanned outages at gas terminals and production facilities according to Vayu’s latest Wholesale Energy Market Report. Despite this, gas prices are still down 23% compared to this time last year.

European gas demand is down 13% since the beginning of the year as a result of warmer weather conditions. This, combined with increased supply, has resulted in substantially increased gas inventories.  Total storage is now at 93% capacity (22 days’ supply) in the UK – the major source of gas supply into Ireland – while storage levels across other major European hubs are above 90% fullness, pointing to a very positive storage outlook as winter approaches.

Prices for next-day gas delivery finished trading on Friday (24th October) at 50.7p, down 23% compared to the same point in 2013. This weakness has also fed into the lower pricing of gas for November 2014 and other wholesale market contracts due to expire over the next three months.

Joanne Daly, Senior Energy Analyst at Naturgy says: “So far this month, the gas market has been choppy largely as a result of fluctuating demand and numerous unplanned outages, which created some volatility. Further out, the market is keeping a close eye on the prospect of Ukraine and Russia normalizing their gas trade relationship. Any agreement during talks over the coming days would greatly reduce the risk premium currently factored into gas prices.”

Joanne notes that, as Europe’s biggest gas supplier, Russia provides approximately a quarter of continental gas demand, with a third of that coming via Ukraine.

Commenting on the effect of oil prices, Joanne says: “A glut of global oil supply is also having an impact on longer-term contracts in the wholesale gas market. With Brent oil prices having reached four year lows, there is no indication of a reduction in output anytime soon from OPEC members over the next six to twelve months. A less positive outlook for the global economy is also having an impact on demand for oil.”

Electricity Update

The average wholesale price of electricity in the Irish market so far in October is 5.90c/kWh – up 3% from the average in September and down 7% compared to October 2013.  The month-on-month rise in electricity prices is largely a result of lower than usual wind generation and a rise in the price of gas, which is the main fuel used to generate electricity in Ireland. Average prices throughout the year so far are down 14% compared to Jan-Oct 2013.

Wind energy has made a substantial contribution toward overall electricity generation in Ireland so far this year. Over 15,055 gigawatt hours (GWhs) of wind energy has been generated since the start of the year, representing 18% of total electricity demand for the country during this period. Month on month, wind generation is up significantly so far in October, reaching peak of 1,784 MW on the 17th October when the tail end of hurricane Gonzalo struck the country. This accounted for 46% of demand at the time.

“We are continuing to see wind energy play an ever more important role in meeting Ireland’s electricity demand,” says Ms Daly. “This will continue to grow the coming years in light of the last week’s agreement by EU leaders to set a 27% target for energy consumption from renewable sources by 2030. Wind energy will be the primary source of this in Ireland, which will require the installation of substantial additional wind generation capacity between now and then.”

*Note: The UK NBP gas market is the major source of natural gas purchased in Ireland and is Europe’s longest-established spot-traded natural gas market. Prices are quoted in p/therm (pence per therm).