Utilities Market Knowhow!

Year Ahead Gas and Electricity prices increased considerably through December and into January. Some of the factors influencing prices could be viewed as shorter term, so potentially prices could start to reflect a more positive future outlook as we come out of the winter. Tracking the markets daily, we are seeing a number of days of losses and then increases, so by no means a clear upward trend.

With the, Organisation of the Petroleum Exporting Countries (OPEC) and non OPEC Oil producers committing to substantial daily reductions, the Oil price is now almost double what it was at the start of 2016. Although there have been steady price increases through the last year, we are once again in a stable period, in the region of $55. There is reasonable doubt that the full reductions from OPEC’s 13 members will be implemented, so the actual outcome achieved will give further direction to prices.

Coal has seen losses after gains through 2016, peaking in November. The expectation is that Coal demand will decrease, with prices following.

The increase in Gas prices has been partly due to a heavy reliance on it for generation, accounting for 46%, whereas a year ago this was 28%. Gas is a cheaper alternate fuel to Coal, which forced the closure of a number of Coal generators in 2016. We also continue to have issues accessing supplies from our largest Gas storage facility, something we normally rely on through the colder months.

Electricity prices followed Gas due to the dependence for generation.Lost Coal capacity and the closure of French Nuclear reactors due to safety concerns, has meant that the supply / demand relationship is a concern within the market, despite assurances that there are enough measures in place to avoid power cuts.

Brexit comments continue to impact on prices. For example, a statement suggesting a Hard Brexit in early January, lowered the value of the £ and so makes our imports more expensive.

What does this mean for me…

The Year Ahead Wholesale price graphs (see end of report) show increases for Gas and Electricity. For contracts which need to be closed soon, it is worth considering contracting now, due to potential volatility, with colder weather across Europe. There is still uncertainty as to which direction prices will go, so for the more risk averse, early 2017 contracts should be considered and closely monitor those further out.

Should you require further information, contact your lpm Estates Manager now.

Life Property Management work closely with utilities broker Indigo Swan, to bring the best energy rates to their clients. Indigo Swan’s Market Knowhow is a regular, comprehensive report on the position of the Utilities Market.

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Deacon is a trading name of Arthur J. Gallagher Insurance Brokers Limited which is authorised and regulated by the Financial Conduct Authority. Registered Office: Spectrum Building 7th Floor, 55 Blysthwood Street, Glasgow, G2 7AT.Registered in Scotland. Company Number: SC108909.