Utilities Market Knowhow!

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

OPEC and Russia looked to stabilise and raise the low Oil price with production cuts from January. The US has also applied sanctions against the Venezuelan Oil industry, to pressure the disputed government. These actions, with the sanctions against Iran, should have a substantial upward impact on prices. However, slowing global growth and record US Oil production levels, meant a small increase from $59 a barrel last month to $61.

Coal prices fell to a ten-month low, due to high stock levels and reduced demand, with milder temperatures in Asia and Europe.
LNG has continued to be a valuable source of Gas over the last month, accounting for 15% of our supplies. Sixteen deliveries were made in January, which is extremely high and have continued into February. The cold spell has seen a reduction in storage levels, down from 85% full last month to 58%. As milder weather has been forecast in the short term, there should be an opportunity to replenish to near capacity.

A cheaper Gas price meant a lower Electricity generation cost. Gas made an increased contribution of 48%, whilst Wind fell slightly to 15% from a high of 20% in November. This uncertainty as to the contribution of Renewables, does show the importance of having diversity, in the form of Gas, Coal, Nuclear and Imports from the continent.

What does this mean for me…?

Wholesale prices have continued a slow steady fall to levels last seen ten months ago, before the US announced it was looking to pull out of the Iran Nuclear deal, with the resulting impact on Oil supplies.

There is a premium built into 2019 Gas and Electricity costs, illustrated by lower prices for periods further out. This makes longer term contracts more attractive.

The Met Office is forecasting milder weather over the next week, with a possible cold spell on the way.

There is a great deal of uncertainty as to which way prices will go in 2019, especially with Brexit and the unknown effect this will have on the £ and the economy. The National Grid have said that a Brexit deal will not impact on our Interconnectors to Europe, providing reassurance. There is more uncertainty as to what would happen if there is no deal. 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, 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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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.