Irish Economy 2014:The Bord Gáis Energy Index was unchanged month-on-month in May with rising Brent
crude oil prices being offset by falling wholesale gas and electricity prices.
In May 2014 the Index stood at 133 which is 3% lower than 12 months ago and 335
up since end of 2009.
Pressure on global oil supplies as a result of numerous geopolitical issues in
oil producing countries, combined with an expectation that oil demand is set to
rise in the months ahead, has kept the Brent Crude Oil price high during the
month of May. In comparison, bumper gas supplies and falling demand has pushed
wholesale natural gas prices and Irish electricity prices lower.
Commenting on the Bord Gáis Energy Index for May,
John Heffernan, Gas & Power
trader at Bord Gáis Energy said:
“Bumper gas supplies to the UK in May have pushed prices to levels not seen
since late 2010 when the market was still in recovery mode following the crash
of 2008 and had yet to be hit by the rise in Asian LNG demand in the wake of the
Japanese Fukushima nuclear disaster. The UK is currently experiencing a steady
flow of Qatari LNG tankers but this traditionally eases in July as summer
air-conditioning peaks in Asia. These supplies, exceptionally high storage
levels and a growing expectation that European gas supplies will not be
interrupted as a result of the standoff between Ukraine and Russia are impacting
on wholesale gas prices. Weakening wholesale UK gas prices in turn pushed
wholesale electricity prices lower as the cost of producing electricity in
Ireland fell with cheaper imported gas.
In contrast to the UK gas market, the oil market is concerned that the expected
demand growth in the months ahead will create a tense situation amid numerous
supply constraints. With global oil demand expected to increase over the summer
months, the world will depend on Saudi Arabia raising its output to satisfy the
demand. The market is conscious that any unforeseen need for significantly large
volumes will test the globe's ability to supply the oil the world needs and this
is keeping prices high. OECD’s commercial inventories are adding to the market's
tightness as they are significantly below their five-year seasonal range. A
weakening euro versus the US Dollar as a result of actions taken by the ECB may
accentuate high oil prices for euro zone buyers of Brent crude oil.”
Oil (+3%): Bord Gáis Energy says that month-on-month the front month Brent crude price rose 3% in euro
terms. A weaker euro versus the US Dollar added additional upward price pressure
for euro zone buyers of Brent crude. At US$109.41, the front month Brent crude
price remains at the upper end of the tight price range within which the global
benchmark has been trading in for over the last year. Continuing geopolitical
tensions in Libya combined with disappointing production levels in Nigeria and
Venezuela have raised concerns regarding the market’s ability to react to any
future large demands.
The firm says that further weakening of the euro versus the US Dollar as a result of measures by
the ECB to tackle low inflation and attempts to boost Eurozone growth could
make Brent crude prices more expensive for Eurozone buyers.
Natural Gas (-8%): In euro terms the average Day-ahead gas price for May was 8%
lower month-on-month as falling seasonal demand and bumper supplies combined to
push prompt prices lower for the fifth consecutive month running. At 44.48p a
therm, the May average Day-ahead gas price recorded a three and a half year low.
The mild winter left UK gas stocks at 72% full at the end of May compared to 31%
at the same time last year. As reported previously, the fullness of the UK's gas
in store is a factor weighing on gas prices as the demand for gas in the months
ahead will be lower because the need to replenish stocks in advance of winter
14/15 will ease.
Coal (+1%): In euro terms the ICE Rotterdam Monthly Coal Futures contract was 1%
higher month-on-month as a stronger Dollar versus the euro pushed wholesale
prices higher for euro zone buyers of coal. Market participants attribute lower
European physical prices to a supply glut that is being reinforced by the
restart of US miner Drummond’s Colombian coal exports last month and low demand
following a mild winter season. In general, sources have pointed out that
supply-demand fundamentals remain bearish, with ample supply and high stocks at
ports and utilities being met by a lack of demand due to the mild winter and the
current shoulder season.
Electricity (-4%): In May the monthly average Irish wholesale electricity price
fell by 4% month-on-month primarily as a result of softer wholesale gas prices
(as gas powered generation dominates the generation mix on the island of Ireland
the price of imported gas from the UK has a significant influence on Irish
wholesale electricity prices). In May 45% of Ireland's demand was met by power
plants burning gas, an increase of 11% on April's level. Wind in May met 12% of
the island's electricity demand, a 2% drop month-on-month.