Headlines:
- Very low Gas Storage levels
- Shortage of LNG deliveries
- The potential for an improved Wind contribution in August
Energy Overview
As of the 9th of August, Gas and Electricity Year Ahead Wholesale costs are higher, when compared to last month’s report.
The Oil price is lower than last month at $69 per barrel, from $77. This follows an agreement by the OPEC+ members to increase production from August. There are also continued concerns regarding the impact of new coronavirus variants on economic growth. Political tensions between the US and Iran seem to have made the prospect of them finding resolution for the nuclear deal, more remote, delaying any additional production.
Gas prices have been extremely volatile due to the concern for the availability of Storage this coming winter. As Gas is the main source of generation, Electricity prices have followed.
Some progress has been made to fill our Gas Storage before the winter, which is now 45% lower than 2020, compared to 75% last month. Supply disruptions, a shortage of LNG deliveries and another month of low Wind, meant we relied heavily on Gas for Electricity generation.
The Met Office forecast for the next month suggests temperatures at seasonal norm, with the possibility of strong winds focused in the north, which would reduce the demand for Gas.
What does this mean for me?
Wholesale prices for 2021 and early 2022 are very high when compared to recent years. Prices for later in 2022 and 2023 show much better value. Generally, the Wholesale element makes up in the region of just 40% of the total cost of an Electricity bill and 60% for Gas, but these percentages will be higher at this time.
Increasing third-party costs are noticeable in Electricity contracts. These include Transmission, Distribution, and government policy levies, which ensure we have enough energy to meet demand and provide investment.
Over the next year or two, the way some of these charges are calculated will change, under the Targeted Charging Review. Energy suppliers can choose whether to fix Electricity contract costs, pass them through or leave that decision until a later date. This does allow for the possibility of a review of the Distribution charges in some fixed price Electricity contracts from April 2022. It is very likely the Transmission element will be delayed until April 2023.
Wholesale prices are likely to remain high despite the possible easing of Gas demand for generation. Supply maintenance, few LNG deliveries and the need to divert any surplus Gas supplies into Storage will keep demand high.
We would advise looking at your options for contracts ending 2021. There is an opportunity to contract for two or three years to take advantage of the lower longer-term prices and dilute the impact of the higher short-term costs.
Please contact us on 0333 320 0475 to discuss options or to get a latest update.
Gas market overview
On the 9th of August, the Gas Year Ahead Wholesale cost was 91.53p/th, up from 84.28p/th in last month’s report and 191% higher than 2020. Prices from quarter two of 2022 are considerably lower.
The nervousness at the low levels of Gas Storage, which are 45% down on 2020, continues to dominate price direction. July saw just one LNG delivery compared to average monthly deliveries of sixteen for the first six months. With the global demand for these shipments and a higher price being paid in Asia, we are unlikely to see a significant change. There is however the possibility that additional Gas may be made available from Russia.
Gas provided 42% of Electricity generation in July, up from 37% in June, due to another poor contribution from Wind. There has been some improvement in August, with higher Wind at 17%, which has allowed Gas supplies to be diverted into Storage.
The seasonal norm temperatures due this month should avoid any excessive demand on Gas for heating and a potentially higher Wind contribution may create some price stability in a very volatile market.
Let us know if you would like us to research your options for 12, 24 and 36 month contracts.
Electricity market overview
On the 9th of August, the Electricity Year Ahead Wholesale cost was £94.02/MWh, up from £87.41/MWh in last month’s report and 115% higher than 2020. Prices from quarter two of 2022 are considerably lower.
Electricity prices have followed Gas very closely due to it making up 42% of generation in July. With Gas supply maintenance, a high global demand for LNG and a shortage of deliveries to the UK, it is likely to remain a price pressure.
Wind provided just 9% of generation in July, down from 12% in June, although there has been some improvement so far in August at 17%. Its erratic nature does mean other sources need to be available, such as Gas and Coal. The use of carbon-based generation includes the need for carbon allowances, which have recently hit a record high, adding a further price pressure.
The National Grid has mechanisms in place, to secure additional supplies or reduce demand. These do come at a cost, in the form of higher third-party charges within Electricity bills but provide an element of stability to prices which otherwise may react far more dramatically.
Let us know if you would like us to research your options for 12, 24 and 36 month contracts.
