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Bord Gáis Energy Index Increases 1% in June; Gas glut to benefit Europe as "Gas OPEC" is currently toothless
By Finfacts Team
Jul 13, 2010 - 2:49:30 AM
The Bord Gáis Energy Index (BGEI), an Irish-specific index designed to
measure prices in the wholesale energy market, increased by 1% in June.
Meanwhile, a report from Deutsche Bank Research says a gas glut will benefit
Europe in coming years and a planned "Gas OPEC" cartel is currently toothless.
The Bord Gáis index is designed to track movement in the wholesale
energy market and comprises the four key energy commodities of oil, gas, coal
and electricity. The index tracks the monthly global price movements of these
commodities, factoring in any currency shifts, and producing an overview and
insight into the global energy sector. Launched last month, the new Energy Index
is the first initiative of its kind in the Irish market.
1) The price of oil rose marginally (1%) in June, from €60.66 to €61.29 per
barrel. 2) The price of natural gas rose by 11% in euro terms, due to a broad
range of issues including erratic flows from the Norwegian Langeled pipeline,
infrastructural maintenance affecting Qatari LNG (liquefied natural gas) and
higher than expected exports to the continent. 3) The 6% rise in the price of
coal in June continued a trend seen since mid-March where prices have been
driven up by increased demand from UK utilities after a period of destocking as
well as the impact of a number of coal mine closures in Germany. 4) Electricity
prices, meanwhile, remained at a similar level to May. 5) Combined, movements in
the prices of the four commodities of oil, natural gas, coal and electricity
resulted in an increase in the energy index of 1% on May’s figures. The Energy
Index now stands at 111 even.
Commenting on the index, Michael Kelleher, Energy Trading Analyst at Bord
Gáis Energy, said: “Oil, natural gas and coal prices all rose in June, and
was accompanied by a weakening of the euro against the US dollar and sterling.
These combined factors pushed the energy Index higher. The Index now appears to
be consolidating at current levels after a relatively steady rise from the
recession-driven lows of March 2009.
Looking ahead, forward markets currently project a small rise in energy
prices. However, given the volatility in these markets due to lack of clarity on
the single currency in Europe, the reduction in the expected growth rate of the
Chinese economy and doubt as to the US’s recovery from its recession, this view
may not persist for long.”
Deutsche Bank Research says gas prices for private households,
SME businesses and industry surged massively up to mid-2008 in the wake of
exploding oil prices. A major driver of this trend was that gas prices in
important western European buyer countries such as Germany are indexed to oil
prices. This contractual arrangement, which has hitherto been regarded as
sacrosanct across broad sections of the gas industry and was undeniably useful
to both sides while the market in gas was starting up, has come to be regarded
in recent weeks as at least partially and temporarily dispensable - - even
in Russia, the dominant source of supply.
DBR economist Josef Auer says there are strong signs that
North American and European gas markets in particular, and also some Asian gas
markets, after having previously existed separately are now growing closer
together. Price trends in recent months are the most powerful indicators of
this.
New gas extraction technologies are suddenly turning gas deposits not deemed
commercially viable until now (unconventional natural gas) into economically
interesting options, paving the way for expansion in gas supplies on a scale not
previously anticipated, chiefly in the US. What is more, instead of coming from
the established gas producing regions the new volumes are widely distributed
around the world.
Auer says it being widely accepted that the combustion of natural gas emits
less CO2 than hard coal and lignite, and against a background of concerns
about climate change, a burst of gas-related investment has been triggered
- - ranging
from the development of new deposits through the construction of additional
pipelines to additional LNG (liquefied natural gas) infrastructures. This investment boom
- - with the
long time-lags typical of gas projects - - is currently having the effect of
pushing up the volumes of pipeline gas and liquefied natural gas available
around the globe. The situation is now being heightened by the development of
unconventional gas, holding out the prospect of substantial additional
quantities. "The gas glut we are seeing at the moment looks set to persist
for some time to come, with severe repercussions on pricing," the economist
says.
Auer says since its early days natural gas
trading in Europe has essentially been based on physical deliveries through
pipelines. The increased emergence of LNG has added another means of
transmission. In terms of quantity, however, pipeline gas continues to
dominate trade, above all in mainland Europe. In 2009 LNG accounted for 10% of
gas supplies in the EU-30.
