Utilities Market Knowhow!

As of the 6th April, the Gas Year Ahead Wholesale cost had decreased slightly when compared to last month’s report, whilst Electricity shows a small increase.

Oil prices have seen some volatility, on a number of days reaching $70 barrel. Recently it has settled back to $67, although last month we reported $65. The Organisation of the Petroleum Exporting Countries (OPEC) have reaffirmed their commitment to the production cap until the end of 2018, with a very high level of compliance from its members. OPEC and Russia intend to restrict supplies and inflate costs, although the continued increase in US production is to some extent undermining this. Tensions in the Middle East are adding some upward pressure to prices, whilst the developing China / US tariff threats are creating uncertainty and having the opposite effect.

Following some considerable losses earlier in the year, Coal prices have stabilised with an increase in demand for Electricity generation across Europe, due to the cold spells. It is expected that Asian demand should reduce as they enter Spring and supplies increase from Indonesia. These factors could see further losses over the coming months.

The cold weather also depleted our Gas storage levels, which we have been heavily reliant on to meet an increased demand and replace lost supplies from unplanned disruptions. As temperatures increase, storage will be topped up. We also anticipate the resumption of LNG deliveries, which through the winter were sent to countries where demand was greatest.

The higher Gas Wholesale price impacted on Electricity through generation costs. There was also upward pressure from a lower contribution from Renewables and Nuclear outages, meaning we switched to more expensive Coal.

What does this mean for me…

As was predicted in last month’s report, the further cold spell in March, at a time when Gas storage had been depleted, did move prices higher, although they have since settled. It is likely to take a couple of months to replenish storage levels. This will give the industry confidence and should be reflected in lower Gas and Electricity costs. However, any additional stress events could push prices higher.

There is little evidence of considerable reductions in the short term, so these contracts should be reviewed now. For those further out in 2018, we would advise monitoring closely.

The impact of higher third-party costs is increasingly noticeable in Electricity contracts. These include Transportation, Distribution and government policy levies. It is estimated that the Wholesale element makes up just 42% of the Electricity bill and that is excluding the supplier margin, metering and VAT.

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

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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