The Bord Gáis Energy Index fell by 5% in April as a steady
supply of gas to the UK, coupled with falling demand weighed on wholesale gas
prices generally. However, tensions as a result of the Ukrainian crisis and the
on-going potential threat to European gas supplies did push wholesale prices
higher on occasion.
Falling wholesale gas, coal and carbon prices weighed on
wholesale Irish electricity prices (down 14% month-on-month) which are highly
sensitive to the cost of importing gas from the UK.
Given that Ukraine is the world's largest transit country for gas supplies,
three questions are causing concerns for gas traders; If heavy weapons are
deployed would the gas pipelines have to be shut down for safety?; Would tougher
sanctions result in a retaliatory move by Russia?, and; If Ukraine does not
settle its gas debt will Russia starve it of gas? On the gas debt issue, some
assurance was achieved following a meeting in Warsaw in early May between
Russia, Ukraine and the EU where it was agreed that there would be no disruption
to supplies while negotiations are on-going this month. Russia claims that
Ukraine owes it US$3.5billion for gas as Ukraine has not paid for supplies
between February and April.
The Bord Gáis Energy Index currently stands at 133, an eight
point drop month-on-month, compared with 100 in December 2009.
John Heffernan, Gas & Power trader at Bord Gáis Energy,
said of the Bord Gáis Energy Index for April:
“The crisis in Ukraine dominated the energy agenda in
April but the apparent threat to European gas supplies eased with a
de-escalation in tensions. As a result, wholesale gas price movements in the UK
were influenced by falling demand and a significant storage overhang as a result
of the mild weather. However, traders will continue to watch the situation
between Ukraine and Russia closely and the threat by Russia to insist that
Ukraine prepays for its gas in advance of June deliveries at prices described by
Ukraine as 'discriminatory' could still trigger a gas supply issue. Over half of
Gazprom’s gas supplies to Europe went via Ukraine last year”.
“This month’s Bord Gáis Energy Index for April saw a fall
in the wholesale electricity price (-14%) month-on-month due again, in part, to
softer gas and carbon prices. Oil prices continued to trade in a narrow range
of between US$105 and US$110 as numerous geopolitical events that supported
prices were offset by steady global production”.
Oil (no change):
Month-on-month the front-month Brent crude price was
unchanged in euro terms. Bord
Gáis Energy said that the
uncertainty around the ongoing Ukrainian crisis
helped to support prices but this influence was offset by steady production from
Saudi Arabia, Kuwait and the UAE, albeit at the expense of global spare capacity
which is thin at just two million b/d. Brent crude prices did weaken early in
the month when Libyan rebels occupying four eastern oil ports agreed to
gradually end their eight-month blockade. However, the country is still having
difficulty boosting its oil production despite now having five operational
export terminals as protests at the oil fields that feed them continue. The
impact of US shale oil continued to produce some extraordinary numbers with US
proved reserves of US crude oil rising to 33.4bn barrels, the highest
since 1976. US crude production hit a 26 year high of 8.36m b/d in April.
Natural Gas (-11%):
Despite the crisis in Ukraine, falling seasonal demand and
healthy supplies pushed prompt prices lower for the fourth consecutive month.
At 49.94p a therm, the average Day-ahead gas price for April recorded a three
and a half year low. The mild winter left UK gas stocks at 63% full at the end
of April compared to 17% at the same time last year and this exceptional storage
overhang is weighing on prices. UK supplies received a boost during the month
as numerous LNG cargoes arrived at its terminals and the average monthly flows
at certain terminals increase 300% month-on-month.
The ICE Rotterdam Monthly Coal Futures
contract was 4% lower month-on-month. Coal prices were relatively stable
during the month and traded in a tight range of between US$77.50 and US$75.05.
Intra-month coal prices did receive a boost from rising gas prices and concerns
around possible sanctions on Russian coal exports. However the underlying
market is characterised by over-supply, healthy stock levels and soft demand.
Coal stocks at major discharge terminals in the Amsterdam-Rotterdam-Antwerp
region have firmed to their highest levels this year at around 6m million tonnes.
The monthly average Irish wholesale electricity price fell
14% month-on-month with softer gas, coal and carbon prices. The average 'clean
spark' (the theoretical gross margin of a gas-fired power plant from selling
a unit of electricity, having bought the fuel required to produce it and the
cost of abating the carbon emitted) in April fell by approximately €2/
million Watt hours (MWh) to
over €12/MWh. In a European and Irish context, €12/MWh remains a strong 'clean
spark'. This was supported by falling production from Ireland's wind turbines
and the requirement to substitute some efficient gas-powered plant with more
inefficient gas-powered plant due to outages. Wind turbines when running tend
to displace gas fired generation which can feed through to lower wholesale
prices. However, wind is unpredictable and lower wind output in April helped