The Organisation of Petroleum Exporting Countries (OPEC) has reported a five-year low in terms of annual revenue.
The 12 member countries slipped below $1 trillion last year for the first time since 2010, showing the impact that the crude oil price slump has had on these wealthy economies.
The countries, which include the likes of Saudi Arabia, Qatar and United Arab Emirates earned $993.3 billion in 2014, down 11 percent on the previous year.
The figures, which appeared in the organisation’s annual report, also show that the combined current account balance dropped by 35 percent to $273.6 billion as the drop in exports was accompanied by an increase in imports.
The Saudi Arabia-led strategy of defending market share instead of prices now appears to be hurting some of these countries which depend on petroleum exports for the health of their economy.
OPEC nations agreed on June 5 to keep a production limit of 30 million barrels a day, a level they have exceeded every month since June last year, according to data compiled by Bloomberg.
“Given the weakness in the first half of the year, another sub-one-trillion-dollar revenue year remains on the table,” Hamza Khan, an Amsterdam-based senior commodity strategist at ING Bank NV, said by e-mail Wednesday.
Bloomberg reports that he also said the impact on the government finances of some OPEC members could be mitigated by increased production and foreign direct investment.
What does this mean for gas buyers?
Although it may not be immediately obvious, the price for gas is heavily connected to the price of oil. This means that any news coming from the largest oil producing nations should be on the radar for volume gas-buyers.
So what do falling OPEC revenues tell us about the future price of gas? If only the answer was black and white.
Unfortunately, OPEC nations are a fairly unpredictable bunch and many of their negotiations are carried out behind closed doors. This means that any OPEC speculation is precisely that, speculation.
Earlier in June, the members reaffirmed their commitment to keep oil production at a quota of 30m barrels per day in a bid to squash competition from American shale oil producers.
“They want to keep the price low enough to keep US shale-oil producers from producing,” said Charles Nedoss, senior market strategist at LaSalle Futures Group and indicators suggest that this strategy is working to a degree.
Mr Nedoss continues: “they’re dealing with something they’ve never dealt with before, the fact that someone else can step-up production.”
While OPEC market share has increased compared to last year and while American production appears to be slowing, some inside OPEC will want to continue with the artificially low prices.
However, according to data compiled by Bloomberg, “almost all the group’s members aren’t earning enough from current oil prices to balance their budgets”.
There is no doubt that some inside of OPEC are beginning to balk at the falling revenues. Particularly among the economies which depend heavily on oil exports.
Venezuela, who was initially one of the country’s most in favour of curbing production, appears to have changed its mind. Their Oil Minister has suggested that the oil market will stabilise before the end of the year and the President recently announced plans for more than $14 billion in domestic oil projects.
If the blowing winds can be trusted then we might expect oil and gas prices to rise at some point in the not-too-distant future. Watch this space.
For more energy market analysis, speak to a member of the Business Gas.com energy team. Call: 0800 157 7157
Contractor’s confidence in the North Sea oil and gas industry is at a ‘record low’, according to a new survey.
The survey, conducted by Aberdeen & Grampian Chamber of Commerce and Bond Dickinson, reveals that two-thirds (67%) of industry operators have been forced to cancel scheduled projects because of the dip in oil prices. While only 21% believed that they were operating at or above their optimum.
Some contractors found minor cause for celebration in the news that decommissioning work was on the increase, but operations which close down operations on the UK Continental Shelf (UKCS) are ultimately detrimental to the industry’s cause.
Uisdean Vass, oil and gas partner at Bond Dickinson, said: ‘Decommissioning is the bittersweet positive in the survey. Academics have been predicting an imminent spike in decommissioning for years but that spike is now well and truly upon us. Decommissioning is not driven by oil price or demand and could be very important in maintaining the value of activity in the North Sea – but the inevitable downside is that it hastens the decline of offshore exploration and production.
In stark contrast, only eight percent of firms involved in exploration activities reported that they expected the value of their work to increase in the coming year.
A number of explanations were offered for the downbeat attitude. Clearly the falling price of oil has had a large effect on North Sea operations but many (81% of) contractors cited tax issues as a serious constraint on their activity. A large number of respondents reported ‘complex regulations’, ‘cost of capital’ and ‘access to capital’ as inhibiting factors.
Effect on the UK gas market
Currently, there is not much concern for UK gas buyers who will continue to enjoy the low gas prices associated with oil prices.
The lack of a viable gas source on Britain’s doorstep could prove problematic in the long-term, but on the whole the industry is confident that there are suitable opportunities for expansion and increased efficiencies.
James Bream, Research and Policy Director at Aberdeen & Grampian Chamber of Commerce, said: “Once again we have a set of results that give us clear signals that new opportunities exist and tells us that actually – contrary to what people say – we haven’t been here before.
“Confidence levels are at an all-time low and we are now experiencing our first ‘recession of confidence’, and it looks gloomy in the year ahead too. However, we have seen positive tax changes, the OGA team is bedding in and in the Queen’s Speech the new UK Government has committed to legislating for the Infrastructure Bill.
“There is lots to build on and just perhaps it is possible that we are seeing the start of the next phase in our role at the frontier of the oil & gas sector. Can we grasp the opportunity to lead the way in decommissioning practices and become a new high efficiency basin as we mature faster than others? This is a mid-life crisis in the UKCS but as some people say life begins at 50.”
For more in-depth gas market analysis talk to one of our industry experts. Call 0800 157 7175.
Hotel managers know that it takes a lot of running around and pleasant smiles to keep guests happy but it also takes a lot of electricity and gas to feed, warm and sleep dozens of people.
Business Gas.com work with hoteliers up and down the country, ensuring they get the best deal on their energy and helping them to keep customers happy.
The Marriott group, which spends almost £60 million on energy in some 140 hotels across Europe, has taken steps to reduce its energy consumption at peak times by instituting a new ‘demand-response’ program.
Other hotels can learn some important lessons about consumption management from the Marriott project.
What is a demand response program?
As you might expect, total national energy consumption varies throughout the day. During hours of darkness, when most people are asleep, total demand is low. At other times like when lots of people are watching England play football energy consumption can be very high.
Because it is difficult to manage the supply of energy, the National Grid attempts to moderate the demand for energy. One of the most effective ways of doing this is to charge flexible energy purchasers higher premiums during periods of peak demand.
In turn, this gives flexible energy purchasers an incentive to reduce consumption. So, for example, some manufacturers might perform the most energy intensive processes at night when there is less pressure on the grid.
Hotels though, do not often have this luxury because they have to effectively cater for every guest need. They cannot simply switch out the lights in the evening time because the rest of the country is tuning into Coronation Street.
What is the Marriott doing to reduce demand?
The Marriott hotel near Regent’s Park in London has adopted a new energy-demand-management programme which is helping them to save money, as well as the environment.
A control box installed at the premises has the power to remotely turn down all elements of the hotels energy usage. At times of peak demand, it can control the consumption of air conditioning, fridges and ice boxes, as well as a whole host of other appliances. And importantly, the hotel says that it can do all of this without any customers noticing.
The hotel has managed to introduce a complete waste reduction package, which is not only saving them money but is also bolstering the hotel’s green credentials.
The hotel chain has plans to put all of its eligible UK hotels on a demand-response programme, potentially saving a considerable amount each year.
Applying the Marriott lessons to your hotel
If you run a hotel, or a chain of hotels, which purchases energy flexibly, then you might be able to reduce your consumption by learning lessons from the Marriott.
Reducing demand at peak times is the name of the game, so first of all you need to evaluate when peak times may be. This will vary according to factors like the weather, or the time of year but by paying attention to market reports you should be able to identify patterns of peak demand.
This can be done by, for example, turning down temperatures in the evening time when demand on the National Grid is greater. You should attempt to find the most effective balance between keeping customers happy and saving money on your energy bills.
Other ways of reducing hotel energy bills
Reducing consumption is not the only way to slash your hotel energy bills. There are a number of other ways in which you can reduce your monthly energy spending which do not involve micro-managing demand.
One such way is to talk to an energy broker and get them to secure you the best deal form a supplier. Or alternatively, join a buying group and take advantage of increased economies of scale by purchasing as part of a group.
Find out if you can reduce your energy bills by calling a member of our team today on 0800 157 7175
In a letter sent to the Financial Times, the heads of six large European gas suppliers have called for action on climate change – highlighting the role that gas can play in addressing environmental issues.
Ahead of an upcoming climate change summit in Paris this December, industry giants including the heads of BP and Shell have made a rare plea for action. Top of their list of recommendations to world leaders is making natural gas an important part of any plans to tackle global warming.
The publicly printed letter marks a change in strategy for the six gas and oil firms, who previously have been known to conduct negotiations behind the scenes.
Their request is urgent and direct. Part of the letter reads as follows:
“As a group of business people, we are united in our concern about the challenge – and the threat – posed by climate change. We urge governments to take decisive action at December’s UN Summit. We are also united in believing such action should recognise the vital roles of natural gas and carbon pricing in helping to meet the world’s demand for energy more sustainably.”
After expressing concern about the challenge posed by climate change, the letter urges leaders to consider turning their backs on coal fired power. They set out an intermediary vision for the future, in which coal is an obsolete fuel.
They argue for a system of ‘carbon pricing’ which is favoured by economists. Under a carbon pricing system, more polluting fuels are penalised with higher taxes.
They also suggest that one of the fastest and quickest ways of bringing down our carbon exposure is replacing coal with natural gas.
Using natural gas to combat climate change
The letter urges governments to consider natural gas to address the pressing climate problem.
“For natural gas, the case is simple: when burned to make electricity, it typically generates around half the carbon emissions of coal. In addition, gas can… continue to improve the storage of electricity produced by intermittent solar or wind.”
Sceptics will be quick to point out that selling natural gas is a large source of revenue for these companies. But the letter does argue that, while renewables have an increasing role to play, the need to cut emissions is so important that all ‘lower-carbon’ options must be explored simultaneously. It also suggests that renewable energy technology perhaps isn’t ready to take on such a large burden.
They also conclude by arguing that they are not seeking “special treatment for any resource, including natural gas.” But rather they are seeking an outcome of the talks which leads to “widespread carbon pricing in all countries.”
The need for a more solid, cleaner supply of energy is becoming clearer and clearer. Earlier this month a story broke about the growth of highly polluting ‘diesel farms’, which generate electricity from rows upon rows of diesel generators during periods of peak energy demand.
What does this mean for gas prices?
Should the UN conference respond to these claims from the industry giants, we can be fairly sure that the demand for natural gas is going to increase. This means that, if everything else stays the same, businesses and consumers should expect to be paying higher prices for their gas in the months and years to come.
To further discuss how this might affect your business speak to one of our experts today – call 0800 157 7175.
Norway has overtaken Russia as Western Europe’s largest gas supplier. The news, reported by Reuters last week, comes after EU member states have actively tried to reduce their dependence on Russian energy amidst growing concerns over coercion and geopolitical instability.
During the first quarter of 2015, Norway exported 29.2 billion cubic meters (bcm) to countries in Western Europe including Germany, France, Belgium and the United Kingdom. In the same period, Russian gas accounted for 20.29 bcm.
It is the first time that Norwegian gas exports have convincingly outstripped those of Russia since a brief period in 2012.
Reducing European dependency on Russian energy
Analysts have reported that the European Union’s drive to reduce its Russian energy dependency is at the heart of this headline. The EU has sought to minimise its dependence on Russian gas – instead choosing to purchase from Norway and other more favourable suppliers.
Politicians and procurement chiefs across Europe have been complaining for some time that Russia abuses its dominant market position to apply leverage over supply partners. Russia has always held a commanding position over the regional gas market and, consequently, has been able to charge higher prices.
European leaders have also become mindful of the situation in Ukraine, where the ongoing conflict puts the main gas supply route between Russia and Europe under threat. But reducing the dependence on Russian supply is not the only explanatory factor at play.
Other explanations
Some buyers have put off purchasing from Russia in the hope that oil-indexed prices (a procurement mechanism which links the price of natural gas to the price of oil) will drop later in the year. This indicates that much of the rebalance towards Norway could only be temporary.
One supply-side explanation comes courtesy of the Troll field in Norway. This large gas field was returned to full capacity last March and began pumping out higher volumes to coincide with the increased winter demand.
Higher imports could mean more instability in the UK gas market
Elsewhere in the news, Centrica, the parent company behind British Gas announced that it will be increasing the volumes of gas imported from both Russia and Norway.
Earlier this month, the FTSE 100 company announced that it was updating a deal agreed with Norway’s Statoil to bring in 7.3 bcm of gas per annum up from the 5 bcm announced in 2011. They also extended a deal with Gazprom to take delivery of 4.2 bcm each year up from 2.4 bcm per annum previously.
Centrica said: “Britain needs around 70 bcm of natural gas each year to heat homes and businesses and to generate electricity, and the UK now needs to import more than half of this.”
The increasing dependence on foreign gas should be of concern to business buyers and households in the UK. An increased appetite for imports, plus a limited capacity to store large volumes of gas means the UK is exposed to more market price shocks.
Previously, the UK didn’t import any of its gas, but supplies have been falling since 2000. Today, nearly 50% of our natural gas supply is imported and this figure is expected to reach almost 70% by the end of the decade.
To find out how gas market news could affect your businesses gas buying strategy call a member of our team on 0800 157 7175.
The Internet of Things (IoT) has a great deal of potential to generate change in society. Devices and appliances, or ‘things’, which can detect change via sensors and then communicate this information over the Internet are seen as real technology game changers.
As time goes on the electronics and sensors needed to make this happen will be becoming cheaper and cheaper and many experts believe that by 2025 IoT will have fundamentally altered the way we live and do business.
The energy industry is one of the areas expected to undergo the most significant change; commentators expect significant cuts to business energy costs.
More visibility
The IoT is a difficult concept, especially if you are trying to work out the advantage of a toaster being connected to the internet.
The advantage normally lies in a greater degree of visibility. Devices such as smart phones, boilers and weather vanes which are connected to the Internet will be able to communicate with manufacturers, operators and other connected devices. They will ‘talk’ about the weather, movements and a whole host of other inputs to communicate a clear picture of the world automatically.
The added visibility will give either you or the manufacturer the ability to make smarter decisions and better products.
Smart gas meters across the internet
Smart meters are already widely available and, though it is a relatively young IoT technology, it has a great capacity to moderate energy demand and reduce costs.
A smart gas or electricity meter will communicate consumption data directly to the energy supplier and to you.
This can generate two cost saving benefits. Firstly, because the meter can communicate directly with the supplier, it means you will always get an accurate reading on your energy bill and will avoid overpaying or receiving the dreaded estimated bills.
Secondly, because the information is communicated directly to you through a real-time online reporting system, it means that you can monitor your consumption more closely. This can empower you to alter your usage patterns, identify areas of waste and reduce demand.
The smart metering roll out can be supplemented with dynamic ‘time of use’ which will reflect variable costs of generation. In this way, businesses which can purchase energy flexibly, for example by running high energy processes at night time, stand to save if they use smart meters effectively.
This will also help deliver a more stable energy system by moderating demand so as to ensure a more constant flow of energy, rather than jumpy production.
The future of the Internet of Things – a smarter supply side
The Internet of Things will also increase the potential for intelligent supply-side management.
Smart grids operated on the Internet of Things will allow distribution to be managed in real time rather than relying on historical patterns of use or the gut feelings of network operators.
They are starting to be used on electricity networks, monitoring the spread of energy as it travels from plant to end-user, and hold a number of benefits to society. Chief among the benefits is that they generate efficiencies.
Electricity is difficult to store so, unless there is immediate demand, it will be wasted. Smart grids will seek to perfectly balance the supply and demand of the electricity network, ensuring that waste is kept to a minimum and consequently reducing the price paid by households and businesses.
Smart grid projects do exist but are relatively small scale so far. Projects like the Glasgow Future City and Pecan Street in Texas show how utilities can be delivered efficiently on a small scale; national smart grid systems might still be some way off.
To find out more about Business Gas.com smart meter solutions click here or read more about online gas reporting here. Alternatively, talk to one of our advisers on 0800 157 7175.
A survey of business leaders published last month revealed some concerning insights.
It found that one in five business people do not understand even the most basic aspects of their energy bill, and consequently are paying higher prices than they should be.
The findings paint a bleak picture of energy intelligence within British businesses. A massive sixty per cent of business leaders are unable to distinguish between estimated and actual readings when reported on their energy bills.
This is concerning because estimated energy bills are notoriously inaccurate – and the likelihood is that businesses are paying for energy which they aren’t even using.
The report also found that a quarter of business people don’t understand the term unit rate, the most basic element of energy pricing.
Paul Rafis, head of energy procurement at Business Gas.com, finds cause for concern among these findings.
He said: “the energy market can be a confusing place at times, but if you want to get the most out of your businesses energy strategy then it’s crucial you have a basic understanding of the bills which find their way to your desk each month.
“If a business is trying to reduce its energy bills then you would think that a grasp of unit price would be a good place to start. Energy is likely one of the big monthly overheads which businesses are paying. If you want to remain competitive month on month and year on year, it is important that you take control and understand your energy bills.”
Gas Purchasing Made Simple for SMEs
Many of the businesses surveyed were small and medium sized firms of between 1 and 50 employees. But the results also revealed that many large firms were ignorant about even the most basic terminology.
Paul continued: “it’s not only large energy intensive industries which have to worry about implementing an energy purchasing strategy. Smaller firms get a competitive edge when they manage their energy outgoings more effectively. But this is by no means easy.
“This report also highlighted that as many as three quarters of SME business leaders believe that they are paying too much for their gas and electricity. Cutting these costs is vital to the survival of modern firms.”
New Gas Buying Guide for Small Firms
Here at Business Gas.com we are committed to helping businesses of all sizes understand and tackle their oversized energy bills. Next week we will release a special buying guide catering specifically for SMEs.
This guide will help small business leaders understand the gas buying market and will help them develop a fixed-price gas purchasing strategy to suit their business.
In the meantime, our big gas market jargon buster can help you understand some of the key terms associated with business gas buying.
For hotels, restaurants and other hospitality businesses, slimming electricity bills requires a multi-track approach.
You should make sure you have the most efficient equipment, know the areas where most energy is being used and make sure you are getting the best price for it.
Here are our top tips on slashing your energy bills.
Generate efficiencies
Many of these tips require you to install new, more efficient equipment. When looking to invest in new energy-saving equipment you should consider the initial costs, and the potential annual savings to calculate a repayment time.
Anything with a payback time lower than a few years is well worth the investment.
Done right you could generate up to 40% reduction in your energy bills from energy efficiencies alone.
Lighting efficiency
- Fitting energy efficient light bulbs could save 75% of your electricity bill.
- Sensors which extinguish the lights when a room is not in use can generate significant savings in rooms such as toilets or storerooms.
Heating efficiency
- Don’t be tempted to change the thermostat regularly. This uses a lot more energy than simply maintaining a constant temperature.
- Insulating your pipes is very cheap and can generate huge savings in terms of the heat that is normally wasted.
- Service your boiler regularly and replace older models. While replacing an old boiler is expensive, the long-term savings can make it worthwhile.
Water efficiency
- Flow regulators on taps can significantly reduce the amount of unnecessary water used by your guests.
- Low-flush toilets are a great way of reducing water consumption in bathrooms. You can make a DIY low-flush toilet simply by putting a brick in the cistern – this is an easy way of reducing the amount of water used per flush.
Insulation efficiency
- Double glazed windows reduce around 25% of heat loss that occurs through single-glazed windows.
- Draught proofing can prevent a further 35% of heat loss.
- Insulate your wall cavities to stop a potential 9% of heat escaping.
- Insulate your roof to save up to 22% of heat loss.
Monitor your usage
Installing a smart meter in your restaurant or hotel is a great way of saving money. Not only do smart meters, coupled with elaborate reporting platforms, allow you to say goodbye to estimated bills. But they also allow you to better monitor your energy consumption and identify areas where savings could be generated.
By collecting this data on your energy consumption you can identify areas where energy consumption is being used efficiently and where it is being used wastefully, such as at night.
Switch to a cheaper supplier
The quickest and easiest way to reduce your energy bills is to switch to a cheaper supplier.
At Business Gas.com we pride ourselves on finding the cheapest possible gas deals for all of our customers. Get in touch to save today – call us on 0800 157 7175.
Energy market analysts have a particularly strong understanding of cause and effect.
They are experts at spotting links between two events which, on face value, seem vastly unrelated.
One such link can be found between a few words spoken by a man on the other side of the globe, and the cost of heating a tin of beans in the UK.
Small increases in the day-ahead and month-ahead gas price last week were directly attributable to growing concerns about Russia limiting the supply of gas to Continental Europe.
Alarm bells sounded when Vladimir Putin threatened to cut off supplies to Ukraine if it failed to pay its gas bills in advance. Subsequently, the Russian gas giant Gazprom warned of risks to the gas supplied to Europe if Kiev withheld payment.
Several pipelines connect Russia with broader European distribution networks. The one which crosses Ukraine delivers large quantities of gas, and because it can be siphoned off as it makes its way through the country, Russia would be unable to stop Ukraine receiving gas without halting the flow to Europe.
Ukraine managed to stave off a European gas crisis, at least temporarily, by paying Moscow £10 million for its gas consumption in March. However, this relatively small sum might reasonably only delay the problem by a matter of weeks.
European gas market will remain edgy
Russia supplies around 30 per cent of the continent’s gas. The North Sea gas fields make Britain less dependent on Russia; however, we will not be immune from rising prices.
Britain is by no means detached from the European marketplace. Although we only buy a small proportion of gas directly from Gazprom, we top up with gas from other European countries who themselves supplement their supply with Russian gas.
Any cut-off that lasted for more than a few weeks would be particularly problematic for British businesses because of the lack of gas storage facilities in the UK.
While many countries are insulated from changes in the level of supply, owing to their large storage facilities, Britain can only store enough gas for little more than two weeks, making us particularly exposed.
How likely is a European gas crisis?
Although gas markets are likely to remain jumpy for some time, and consumers might expect small price increases in the near future – a gas crisis seems fairly unlikely.
On previous occasions when supply has been cut-off or limited, Gazprom, the Russian exporter, has lost huge sums of money – and suffered long-term reputational damage. Any move to cut supply would probably be harder on Russia than on Europe.
Any move to cut off supply will also likely motivate European leaders to step up attempts at becoming less dependant on Russian energy – which would have lasting implications for Russian exporters.
The general feeling is that Putin is fighting a war of words, and using supply threats to try and weaken his opposition in Ukraine. However, in the past he has proved a highly unpredictable character, so crises should by no means be ruled out.
Many businesses and consumers are enjoying the positive effects of falling oil prices in the UK. At the same time though, many large energy companies, as well as their investors, are cringing at the thought of $50 oil barrels.
Pinched profits and falling share prices have forced industry executives into taking ill-advised investment decisions.
Many commentators as well as industry insiders have warned of the catastrophic consequences that could arise from failing to commit to the long-term viability of the the oil and gas industry. By not investing in new supplies, energy giants risk being unable to meet global demand – and push the world closer into a highly volatile marketplace.
If companies restrict investment in new oil and gas supplies then the energy market will develop a structural turbulence which will be difficult to manage. Prices will rise and consumers will be the ones who suffer most.
Energy cuts have been sharp and fast
The rationale for large firms is relatively simple; risky energy projects like exploratory campaigns which previously might have been commercially viable, now no longer make sense in the age of $50 oil.
This is problematic because oil fields cannot be converted into credible sources overnight. So, energy companies need to be planning their supplies ten years in advance; and not for their share price tomorrow.
Unfortunately, many energy projects are being put on hold as suppliers balk to short term shareholder demands, thus risking long-term strategy and energy security.
Significant job cuts have already been made in places like the North Sea, where dwindling reserves make extraction more expensive. Furthermore, Shell – the Anglo-Dutch energy giant recently announced its plans to slash investment by $15bn over three years.
Such short-termism risks the emergence of even bigger supply shortfalls in the future. There is a real and growing concern that companies are sinking the knife too deeply and too quickly following the OPEC-engineered price re-flooring. Consumers are rightly concerned that they will see the price of crude oil resurface well above the $100 per barrel mark.
Pockets of hope
There are some slivers of hope though. Some companies have shown evidence of forward planning and a commitment to longer term thinking. Shell, the same company that committed to slashing investment by $15bn has also committed to pressing on with its Artic drilling campaign in the summer.
Chief executive Ben van Beurden explained that difficult investment decisions should not be take on short-term factors like reduced oil prices. He urged suppliers not to overreact to increased shareholder pressure by indiscriminately scrapping longer-term projects.
Common sense thinking like this is commendable in what is sometimes a fickle marketplace.