Energy Market Update – December

Overview

As of the 11th December, Gas and Electricity Year Ahead Wholesale costs show decreases when compared to last month’s report.

OPEC and Russia have announced further Oil production cuts through to March 2020, in an attempt to support prices. As a result, they moved from $61 a barrel last month to $64, but have since slipped to $63. This had been anticipated, so the impact may be short term, due to trade disputes between the US, China and the EU, which continue to supress world economic growth.

The cost of Wholesale Gas is at its lowest level since 2016, as illustrated by our graph, despite entering the colder months. There was a record twenty-five LNG deliveries in November, with a large number already booked for December. These supplies have allowed us to divert Gas into storage. There is some concern that the arrangement to transport Russian Gas through Ukraine, may not be extended and result in a shortfall. The alternate route via Nord Stream 2, is likely to be available mid-2020.

Electricity Wholesale prices are at levels last seen in 2017, with supply confidence for the winter. As Gas prices are lower and regularly provide 40% of our generation, this directly impacts on Electricity. Wind has made a significant contribution for a number of months, replacing more expensive sources. Although Coal supplies a decreasing proportion of our Electricity, it remains an important contributor when demand is high and less reliable Renewables are low. Coal generation is due to end by 2025 as part of our target to reduce carbon emissions, although plants continue to close early, due to not being profitable.

The Met Office forecast for the next month seems to suggest strong winds, with some cold spells. This will mean a continued high Gas heating demand, but provide good levels of Wind generation.

Friday 13th will see the outcome of the general election and in turn, the likely future of Brexit and Labour’s plan to nationalise large parts of the industry. A Conservative majority would likely see little price change, whereas a Labour or coalition victory, may see a market reaction.

What does this mean for me…?

Wholesale prices are extremely competitive. It is advisable to request supplier offers for 2020 contracts, for your consideration. Longer term contracts also look attractive and provide budget certainty. With colder weather, higher demand and a tighter supply / demand relationship, there is a greater risk of price volatility.
The influence of higher third-party costs is increasingly noticeable in Electricity contracts. These include, Transportation, Distribution and government policy levies. It is estimated, the Wholesale element makes up in the region of 45% of the Electricity bill and that is excluding the supplier margin, metering and VAT.

Please contact us on 0333 320 0475 to discuss options or to get a latest update.

Gas Market

On the 11th December, the Gas Year Ahead Wholesale cost was 36.84 (p/th), from 40.34 (p/th) in last month’s report and 39% lower than 2018.

LNG continues to be a driving factor for our lower prices, meeting 26% of our demand in November. Further shipments are due this month, with the expectation that these should continue into 2020.

Combined, Medium Range and LNG Gas Storage, has fallen to 70%, but healthy supplies mean this is currently causing no concern. Gas demand for Electricity generation was up on the previous month at 42%, but so far in December this is just 36%, due to a greater Wind contribution.

There is the possibility of supply disruptions due the ending of a Gas transportation agreement between Russia and Ukraine. This is unlikely due to the financial consequences for both parties.

Let us know if you would like us to research your options for 12, 24 and 36 month contracts.

Electricity Market

On the 11th December, the Electricity Year Ahead Wholesale cost was 44.09 (£/MWh), from 46.45 (£/MWh) in last month’s report and 26% lower than 2018.

Wind’s contribution fell in November to 16% of generation but has picked up this month, currently at 23%. More turbines are due to be added, which removes some reliance on Gas, which contributed a high 42%, to support a lower Solar supply.

Use of Coal increased from 1% to 4%, which is far lower than last year’s 9%. This is still an important source of supply, before its closure in 2025. SSE announced the closure of their Fiddlers Ferry plant, its last, by the end of March 2020.

National Grid have stated that the Electricity supply margin is more comfortable this winter than last year, helped with the return of some Nuclear capacity.
Third Party Charges continue to increase regardless of how the Wholesale element changes, which has been very evident as we look to secure contracts for customers. These charges typically pay for the mechanisms, securing generation at peak periods.

Let us know if you would like us to research your options for 12, 24 and 36 month contracts.