Utilities Market Knowhow!

As of the 11th December, Gas and Electricity Year Ahead Wholesale costs were virtually unchanged when compared to last month’s report.

Oil has fallen further over the last month from $70 a barrel to $60. US Oil sanctions against Iran had been pressuring prices higher, however, the exemptions for eight countries reduced the impact, supported by an increase in supplies and storage levels. There is also thought that the US trade dispute with China will slow down world economic growth. OPEC and Russia have announced large Oil production cuts from January in an attempt to avoid further losses.

Coal prices fell with reduced demand from China due to import restrictions and a slow move towards replacing with Gas. Logistical supply issues lowered demand from Germany, although this should pick up through the winter.

Gas storage levels remain high at 88% full. This now excludes the much larger Rough facility, which has effectively closed. This reduced capacity makes us vulnerable to prolonged cold spells, as experienced earlier this year, when storage became depleted and prices increased. We continue to receive LNG deliveries, as the UK price is attractive to shippers. Twelve were made in November, the highest level in at least two years. A number of deliveries have already been made in December.

Lower Gas and Coal generation costs have stabilised Electricity prices, despite the colder weather. Wind provided 20% of the supply mix in November, a record high. This and Coal’s availability, reduced the need for the use of Gas, which through the year has become an expensive form of generation.

What does this mean for me?.....

Wholesale prices are lower and stable following September and October peaks, although they are still high. There is a premium built into 2018 / 19 Gas and Electricity costs, illustrated by lower prices for periods further out. This makes longer term contracts more attractive, something that is not likely to change significantly in the short term.

There is a great deal of uncertainty as to which way prices will go in 2019, especially with Brexit entering a crucial phase and the unknown effect this will have on the £. The National Grid have said that Brexit will not impact on our Interconnectors to Europe, providing reassurance. Sentiment is often a big factor for Wholesale costs.

The influence 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 in the region of 50% 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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