Wholesale gas prices fell in the UK on Wednesday as reduced demand from gas plants boosted oversupply.
In the morning, Reuters reported that the price for next day delivery slipped by 0.30 pence to 39.80 p/therm. Meanwhile gas for immediate delivery dropped 0.50 pence to 39.90 p/therm.
The price drop came after National Grid data showed that the UK gas system was oversupplied by 22 million cubic meters (mcm) on Wednesday.
The oversupply came after two nuclear reactors came back online earlier in the week. Traders said that this eased gas demand from combined cycle gas turbines.
After the official winter gas season began in the UK on the 1st of October prices were down across the board. The October price was down 0.10 pence while the winter contract price dropped 0.05 pence.
Elsewhere, sources reported that Russia’s state-run Gazprom agreed a tentative deal to supply Ukraine with gas for the winter. The easing of relations, in addition to the perceived willingness on behalf of the European Commission to mediate will, over time, calm nerves and relieve some of the upward pressure on prices.
More generally, the October price fall is a continuation of the downward trend in wholesale gas prices.
Business buyers who are considering when to buy a fixed-price contract for summer 2016 might be tempted to see how far this downward trend will continue.
But the waiting game should be played with caution.
With forecasters predicting one of the coldest winters for 50 years there is a strong possibility that the prices could rise before the warmer months.
Risk adverse buyers might think about banking soon; current prices are likely close to their floor.
Smaller firms might be concerned that this fall in wholesale prices will be slow in filtering through the supply chain. Mainstream suppliers are famously slow to reduce prices in line with wholesale price cuts.
Small companies in Greater Belfast will enjoy a recent 10% price cut from SSE Airtricity. This shows certain intent on behalf of suppliers to react to changes in the market price.
At Business Gas.com we try to keep our day-ahead prices as current as possible. Changes in the wholesale market price will be reflected in our rates. See our latest prices and calculate how much you could save.
Day-ahead, week-ahead and month-ahead gas prices have all increased, and the threat of more hard weather looms for UK businesses.
Wholesale natural gas prices increased yesterday as a frosty start to September boosted demand. Meanwhile supplies of liquefied natural gas (LNG) fell and anticipated Norwegian flows dropped for the coming week.
After a record breaking summer of above average heat, Brits have been brought back to earth in September, as below normal temperatures led to higher demand and higher prices for natural gas.
Yesterday, prices for immediate delivery were trading 0.35 pence higher at 38.60 per therm at the start of the working day. Meanwhile day-ahead prices for Wednesday had increased by more than double, trading 0.90 pence higher at 39.15 pence/therm.
By the end of the trading day though, day-ahead rates had jumped by more than five percent to 40.20 pence per therm.
The National Grid showed that the British gas system was oversupplied by 9.6 mcm on Tuesday morning due to higher flows from Norway via the Langeled pipeline. However, these flows are expected to dip next week when maintenance ends at Germany;s receiving terminal in Emden on Sept 5th.
The cold weather snap has also affected week-ahead and month-ahead rates. Prices for delivery on working days next week were up by about 5.2 percent according to analysts at Thomson Reuters Point Carbon.
Looking farther into the future, prices for winter delivery were up by 0.40 pence to 44.50 pence/therm. This comes after the Australian Bureau of Meteorology said yesterday that The El Nino phenomenon, the warming of Pacific sea-surface temperatures, is the strongest it has been since 1997-1998.
The potential is that this weather event could lead to a period of extreme weather and higher domestic and business demand for gas.
After two relatively mild winters, this return of harder weather could upset predictions about low wholesale gas prices this winter. Rising prices at the start of September could be the early stages of a price spike which will have a knock on effect both on the supply of and demand for gas in the UK.
As always in these situations, buyers face some difficult decisions about when and how much to buy. Essentially, gas buyers are betting on how mild or extreme the coming winter will be.
For advice on how market events affect your buying strategy, speak to one of our expert brokers today and we’ll be able to point you in the right direction. Call 0800 157 7175.
Alternatively, if you are a small or medium sized business, why not consult our Business Gas Buying Guide for SMEs.
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.
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.
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.
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.
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.
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.
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.
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.
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.
Business Gas.com has published a new guide to purchasing gas for small and medium size businesses. This guide is designed for business leaders and owner managers who want to reduce their energy expenditure and protect their bottom line against market shocks.
It is packed with practical tips and actionable advice related to developing an energy purchasing strategy and particularly, buying gas on a fixed-price contract.
National and international gas markets are volatile and shaped by a complicated myriad of factors. If you approach the gas market without a strategy then it is easy to buy at the wrong time and lose control of your energy costs.
The advice is targeted towards businesses which use between 32,000 kWh and 120,000 kWh of gas annually, but many of the lessons are applicable to anyone involved in the purchasing of energy.
Above all the guide is designed to be accessible and it assumes no prior knowledge on behalf of the reader. But it really can give you the knowledge to secure cheaper gas rates for your company.
Paul Rafis, Head of Gas Procurement at Business Gas.com, said: “business leaders will be familiar with the headache which energy purchasing can cause. This guide makes it simple.
“We’ve designed a guide that is both comprehensive and accessible. Among other things it will teach you how to evaluate your gas needs, purchase effectively and most importantly reduce your gas bills.”
This guide explains:
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.”
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.”
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.
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.
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.
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.
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.
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.