Energy Market Update – October

As of the 9th October, Gas and Electricity Year Ahead Wholesale costs were lower when compared to last month’s report.

Oil is down from $60 to $58 a barrel although we did see $69 following the drone attacks on Saudi Oil facilities, which also impacted on Gas and Electricity prices. OPEC and Russia look to maintain a high price by extending their production cuts through to March 2020. However, trade disputes between the US, China and the EU, continue to suppress world economic growth and the price of Oil.

Electricity prices have decreased following news that the faults that were found in some French Nuclear reactors, will likely not mean their closure through the winter. There is the potential that this problem could surface again and cause price volatility. Wind continues to make a big contribution, replacing more expensive forms of generation. Although Coal provides 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.

Despite a colder spell increasing domestic heating demand, Gas prices have fallen. There were ten LNG deliveries in September, up from the two we had in August. These supplies have allowed us to divert Gas into storage in readiness for the higher winter demand. Indications are that October will also see a significant LNG contribution.

The Met Office is forecasting average temperatures over the next few weeks, with the possibility of overnight frost. Although there will likely be some bright dry spells in the south, generally conditions will be wet and windy, so the weather should not cause any substantial price pressure.

The National Grid have said that a Brexit deal will not impact on our Interconnectors to Europe. There is more uncertainty as to what may happen if we exit without a deal on the 31^st October, which the government still says is a possibility. Sentiment can be a big factor for Wholesale costs.

What does this mean for me…?

Wholesales prices are very competitive when compared to previous months. As we head into the colder months and with the latest Brexit deadline looming on the 31st October, securing 2019 / 2020 contracts should be considered. Events such as those that recently caused short term price spikes, would likely be more significant and prolonged should they occur this winter.

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 9th October, the Gas Year Ahead Wholesale cost was 46.21 (p/th), from 47.63 (p/th) in last month’s report and 30% lower than 2018.

The price pressures from the early closure of the Groningen Gas Field and the restriction of the use of the OPAL pipeline, bringing Russian Gas into Europe, have been absorbed.

September saw an increase in LNG deliveries, which have continued into October, allowing for a more comfortable supply position. Storage levels are currently 91% full compared to 69% this time last year, providing more confidence as we approach the colder months.

The recent high contribution of Wind generation has removed some of the burden from Gas.

Average temperatures have been forecast for the coming weeks, reducing the likelihood of a prolonged period of increased demand.

Electricity Market

On the 9th October, the Electricity Year Ahead Wholesale cost was 49.55 (£/MWh), from 52.30 (£/MWh) in last month’s report and 21% lower than 2018.

There has been reassurance that the safety issue within French Nuclear reactors will not mean their closure through the winter. This news had a big impact in reducing costs.

Wind’s contribution remained high at 19% of generation in September and indications are that October will be similar, as is currently 25%. More turbines are due to be added, which removes some reliance on more expensive Gas, which contributed 36%, from 45% earlier in the year. Nuclear also showed an increased contribution at 22%, whilst Coal remained low at under 1%. This is still an important source of supply, before its closure in 2025.

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.

Get in touch if you would like any more information.