Headlines:
- Gas storage levels have improved
- Shortage of LNG supplies and uncertainty regarding Russian Gas deliveries
- More Electricity connectivity with the continent is on its way
Energy Overview
As of the 6th of September, Gas and Electricity Year Ahead Wholesale costs are higher, when compared to last month’s report.
The Oil price is higher at $72 per barrel, from $69. It is showing some stability, averaging $72 over the last four months. Despite Oil production increases by OPEC+ members, it is still expected that more may be required to meet demand, as was requested by the US, but declined by OPEC+.
Gas prices have been extremely volatile with much of the focus being on very low levels of Gas Storage. Since the start of August, they have improved from just 40% of 2020 levels to 96%, and yet concerns remain for supplies through the winter.
Electricity prices have followed Gas very closely as it is the main source of generation and has had to compensate for another disappointing Wind contribution.
The Met Office forecast for the next month suggests unsettled conditions but with no mention of significant winds. Temperatures are likely to be above seasonal norm.
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 are currently more like 55% and 75%.
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 improved Gas Storage levels, due to other supply concerns. There may be some relief should there be indications of a milder winter.
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 6th of September, the Gas Year Ahead Wholesale cost was 106.52p/th, up from 91.53p/th in last month’s report and 195% higher than 2020. Prices from quarter two of 2022 are considerably lower.
Gas Storage levels have been topped up over the last month and are now at similar levels to 2020. The low levels were a main reason for the steep rise in Gas prices since April, but the nervousness now focuses on a potential shortage of Gas supplies over the winter. These include, LNG deliveries heading elsewhere due to even higher prices, high levels of planned and unplanned Gas maintenance and a lack of positive commitment from Russia to deliver additional Gas to Europe.
Gas provided a lower 37% of Electricity generation in August, down from 42% in July, due to an improved contribution from Wind and Imports from the continent.
The above seasonal norm temperatures due this month should avoid any excessive demand on Gas for heating although a potentially low Wind contribution may continue to add pressure to Wholesale prices.
Let us know if you would like us to research your options for 12, 24 and 36 month contracts.
Electricity market overview
On the 6th of September, the Electricity Year Ahead Wholesale cost was £105.96/MWh, up from £94.02/MWh in last month’s report and 124% higher than 2020. Prices from quarter two of 2022 are considerably lower.
Electricity prices have followed Gas very closely due to it providing 37% of generation in August. 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.
There was an improved contribution from Wind, at 15% of generation in August, up from 9% in July, although so far in September this is just 8%. Imports from Europe were also high, providing 16%, a figure we can expect to grow due to more connectivity. Firstly, from the North Sea Link (NSL) with Norway, which is scheduled to be operational in October, followed by ElecLink with France in 2022. These and other links will allow for more diversity and flexibility, potentially removing some of the burden from Gas generation.
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.
