Utilities Market Knowhow!

As of the 9th November, Gas and Electricity Year Ahead Wholesale costs were lower when compared to last month’s report.

Oil is $70 a barrel from $83 last month. There had been a considerable amount of concern built into the Oil price due to the sanctions by the US on Iran and anticipated shortages. In the lead up to this, it was reported that Russia and Saudi Arabia had increased production and the US having higher than expected stocks. The US also announced a six-month exemption for eight countries, from the ban on buying Iranian Oil. These factors and the potential slowdown in world economic growth due to trade disputes, have helped ease Oil prices.

A lower demand from Europe and high stocks, helped lower the price of Coal. It is anticipated that additional supplies will be available from Australia and South Africa in the coming months, which will hopefully provide stability, to what is generally an erratic market.

Gas storage is almost full at 86%, although 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 have seen the resumption of LNG deliveries, with the UK price being more attractive than the Asian, where shipments were previously heading.

Electricity prices are lower with more positive fundamentals. As Gas and Coal prices are down, this allowed for lower generation costs, as did the continued high contribution of cheaper Wind at 17% of supplies. Coal accounted for a small but important 4%.

What does this mean for me…

Although prices are coming down, 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, which 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 discussions entering a crucial phase and the unknown effect this will have on the £. The National Grid have said that Brexit will not impact our Interconnectors to Europe, providing some reassurance. Sentiment is often a big factor for Wholesale costs.

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 in the region of 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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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.