The Bord Gáis Irish Energy Index was stable (-1%)
in June as falls in the Irish wholesale electricity, UK Day-ahead gas and
European coal prices were counteracted by a rising front month Brent crude oil
prices. Overall wholesale gas and electricity prices have started to trade at
more normal levels as they continue to recede from the record highs that were
recorded earlier in the year. The Index now stands at 136 which is 2% higher
than June 2012.
Bord Gáis said that with the absence of any significant short-term
supply concerns, the month-on-month fall in the index was expected given that
energy commodities such as gas and coal tend to soften as we enter a period of
reduced demand in the summer months. As the wholesale Day-ahead UK gas market
continues to recede from the record highs seen in March of this year, downward
pressure is being applied to the Index. However, gas prices for winter 13/14 did
receive some support during the month as concerns about future gas supplies were
again raised following the unexpected announcement in June of extended Norwegian
maintenance over the coming winter period.
John Heffernan, power trader at Bord
Gáis Energy said: “Oil prices continued to be pushed
and pulled by conflicting forces that have dominated the market in recent
months. Commodity prices are being driven lower as the markets consider the
impact of reduced US Central Bank support for the world's economy, slower
economic growth in China and the continuing expansion of the US shale oil
revolution. On the other side, prices are being supported as traders continue to
fear the on-going instability in the Middle East and North Africa and the
potential it has to disrupt supplies. Oil-field outages in the North Sea and an
expected increase in refining capacity this summer also supported prices. As a
consequence of these influences, the front month Brent crude oil price appears
to be hovering around the $100 – $105 a barrel range as the market lacks the
confidence to move decisively in any direction. Planned maintenance and
potentially lower Norwegian gas supplies to the UK this winter, plus the need to
replenish historically low stocks over the coming weeks and months are expected
to support gas prices."
The following are the key trends for the month
Oil: Month-on-month the front month Brent crude oil price rose 2% in euro
terms. Despite the tepid month-on-month change in the price of oil, price
movements intra-month were more dramatic as they responded to a series of events
that drove prices as high as US$107 and as low as US$99. Geopolitical
developments, initially in Syria and subsequently Egypt, were the key upward
influencers on the price of oil. Dramatic price dips during the month occurred
as the market reacted to news of the US Federal Reserve’s proposed future exit
from its programme of quantitative easing.
Natural Gas: In June the monthly UK average Day-ahead wholesale gas price
continued to recede from the record levels recorded over the last few months. In
March of this year the Day-ahead gas price hit record levels due to a prolonged
cold snap and supply concerns. Warmer summer weather and reduced demand for gas
are now starting to apply downward pressure on Day-ahead prices and at 60p a
therm, the monthly average Day-ahead wholesale gas price has falling back to
within a normal price range of between 55p - 65p a therm.
Looking ahead, a number of negative maintenance announcements did create some
anxiety about future supplies in the coming winter. In particular, Gassco (the
Norwegian state owned company that operates the natural gas pipes) announced
that it will be taking 34m cu m/day of gas out of the system over the coming
winter. As UK gas supplies last winter were at times uncomfortably tight, any
reduction over this sensitive season is a concern. Following this announcement,
the winter 13/14 price spiked over 2p a therm.
Coal: European coal prices continued to slide in June (-9%) and at
US$74.55 the ICE Rotterdam Monthly Coal Futures contract closed at a 44 month
low. Weak European coal prices were attributed to warm weather across the
Continent, a lack of demand and healthy supplies.
Bord Gáis said Europe continues to benefit from ample Colombian supplies which
are still attracted to the European market despite the historically low prices.
Ample supplies and reduced demand means that the European coal market is
saturated and prices are falling. Internationally, global coal prices are
suffering from a similar supply glut which has seen Indonesia, Australia and
Russia all increase exports in recent years. China dominates the demand side of
the equation as it now consumes over half of the world's coal. With China's
demand for internationally traded coal waning recently, global prices have
suffered and international coal prices are weak. China's reduced appetite is as
a result of sizeable stock piles at power stations, overproduction by Chinese
producers resulting in cheap domestic supplies, reduced access to credit, peak
hydro-electricity generation and a slowdown in economic growth. With
Asia-Pacific now consuming nearly 70 per cent of the world's coal, future
economic and social developments in that region will drive global coal prices.
Electricity: In June Irish wholesale electricity prices fell 4% as the UK
average Day-ahead wholesale gas price fell 9% month-on-month. As the wholesale
Irish electricity price tends to be determined by the cost of producing power at
a gas powered plant, falling Day-ahead UK gas prices had a significant impact
and pushed Irish electricity prices lower.
Despite falling gas prices, the rising cost of carbon emission allowances and
'sparks' applied some upward pressure on prices, but their impact was
overshadowed by lower gas prices. Some additional upward price pressure was
applied as the volume of electricity produced by wind fell month-on-month. This
meant that expensive fossil fuel plants were called upon to produce power and
the system had to incur these extra costs which fed through to prices.
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