Utilities Market Knowhow!
Although we did see Wholesale prices fall in September, they rebounded to just slightly higher than last month’s report.
At this time Oil is $55, but did reach $59 in September. The Organisation of the Petroleum Exporting Countries (OPEC) have a production cap in place, due to last until the end of March 2018. Compliance with this has been varied and some exempt OPEC members have increased output. The intention of the cap, which is also supported by Russia, is to inflate the price to provide more revenue for nations which depend on it. There has been speculation that the cap will be extended further into 2018, which partly caused the $59 spike, along with supply concerns from the Middle East. Due to links, Gas to some extent tends to follow Oil. The next OPEC meeting is November.
The lower temperatures have started to impact on Gas prices, adding pressure with increased demand. The industry is concerned about the winter without our largest gas storage facility, Rough, and the resulting likely increase in the Wholesale costs. The little Gas left in Rough is being withdrawn before its closure, to provide some relief. Other sources of supply, such as piped imports from the continent and LNG shipments, will be relied on for heating and generation.
Electricity prices followed Gas, as it accounted for 43% of generation in September. There were also continued issues with Nuclear availability from France, due to safety concerns, reducing our imports. On such occasions, Coal is a likely alternate source of supply, which recently hit an almost four year high due to Asian and European demand. The expectation is that more generation will be available from October, after the award of contracts from the Capacity Market (CM) auction. The CM is one of the government measures to avoid power shortages, paid for via third-party charges within bills.
The value of the £ has also been influencing Gas and Electricity prices, as the £ gained strength through September, making imports cheaper. Less positive political and economic messages, including doubts about the start of the next phase of Brexit talks, have since lowered the £.
What does this mean for me…
The Year Ahead Wholesale price graphs show little change when compared to the previous month, although lower mid-month prices proved there is some sentiment built into these. Lower temperatures, an increased Gas heating demand, a reliance on Gas for generation and concern about the sources of supplies, could mean this upward trend continues through the autumn and winter. For these reasons, it is advisable to put contracts in place for 2017 and early 2018.
It has been increasingly noticeable what the impact is on Electricity contracts with higher third-party costs, including, Transportation, Distribution and government policy levies.
Should you require further information, contact your lpm Estates Manager now.