Utilities Market Knowhow!

Gas and Electricity Year Ahead Wholesale costs fell as of the 9th February, when compared to last month’s report.

Following the Organisation of the Petroleum Exporting Countries (OPEC) and Russian, production caps, which have been extended until the end of 2018, the price of Oil reached a three-year high in January of $70 barrel. It has since been highlighted that US Oil production has increased to levels last seen in 1970, with the expectation it will go higher. At the current level of $62, the US may reduce output once more and await opportunities for higher profits. Should the current US levels continue, OPEC and Russia may react themselves, to take back market share by increasing production, further deflating the price.

Recently the cost of Coal was at a four-year high, but since the start of February, there have been falls based on a reduced global demand and production increases. The UK intends to have phased out Coal generation by 2025, with Eggborough the latest closure, but for now Coal is still a much-needed source. Typically Coal generation reacts to reductions in other areas. For example, low Wind or when we had Import issues from France.

There was a concern that Gas prices could be volatile due to the closure of our largest storage facility. The process of emptying this is showing a large availability of Gas to be released, which has eased supply concerns. A more positive supply outlook, milder temperatures and the reduction in the linked Oil contracts has meant, Wholesale prices have fallen.

The lower Electricity Wholesale cost is due to, cheaper Coal and Gas generation costs, a very high 17% Wind contribution and a resumption of good Imports from the continent. There is also a confidence that we have the mechanisms in place if required, through government policy, to react to system pressures. These have resulted in higher third-party costs to consumers.

What does this mean for me…

Looking at price movements in a little more detail, there have been falls from the higher winter costs, but these have stabilised. This presents an opportunity to secure the 2018 Wholesale cost, at a lower level than we have seen for a number of months. Longer term contracts are also showing good value, reflecting a positive outlook.

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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