Wholesale Gas Prices Fall 43 Percent Year On Year May 2019 Naturgy Energy Review and Forecast

Kathryn Stevenson Corporate

Wholesale gas and electricity prices in Northern Ireland decreased by 43% and 17% respectively in May, compared to the same period last year, according to the latest Naturgy Energy Review and Forecast. The report shows that wholesale gas prices fell by 4%, while electricity prices registered a slight increase of 0.5% month on month. There has been a significant decline in these prices since January 2019, by 49% on average.

Gas Market

Commenting on the review, Naturgy Energy Analyst, Lauren Stewart, said: “May has been a month of two halves for trading on wholesale gas markets. Prices lingered around the mid-30s before increasing to 38p/th on 9 May. A Norwegian outage and lower temperatures combined to steer prices higher. This is a maintenance intensive month and some system shortness would be expected. However, from this point onwards, the Day-Ahead contract was generally trending down and by 16 May was trading at sub-30p/th levels. With improved Norwegian availability, the sentiment was bearish for the rest of the month.”

Ms. Stewart added: “A key driver of both prompt and near-curve prices in recent weeks has been liquefied natural gas (LNG) supply. Strong LNG send-out during May helped balance the system during periods of high demand, while expectations of a healthy schedule of LNG deliveries for the coming months kept the front-month contract from following far-curve the upward trajectory of contracts. The recent start of LNG production at the US Cameron plant in Louisiana will likely mean Britain will see greater US sourced LNG for the remainder of the year. Furthermore, some weakening was reported from across north-east Asia LNG markets recently, which suggests that the current LNG wave into Europe will persist well into the summer. Year to date, Britain has received 71 LNG cargoes, already surpassing the number of deliveries in both 2018 and 2017.

“Further out, some risk persists in winter contracts, largely due to demand uncertainty. An earthquake near the Dutch Groningen field towards the end of May lifted some forward contracts.  However, the impact on the forward market is likely to be limited considering the already-hampered production and long-term outlook for the field. Groningen production during 2019 will drop considerably, while production could cease as early as 2026.”

Electricity

Electricity prices are still tracking their downward trajectory from the previous year; roughly 17% down year on year and averaging 4.26p/kWh for May. Electricity prices remained neutral for most of the month, gaining just 0.5% from April; however, significant gains were seen in the week of 22 May.

Ms Stewart added: “With wind generation at just 8 MW at one point, the wholesale market subsequently saw Day-Ahead prices peak at 11.87p/kWh. Overall wind generation was down 39% month on month, averaging at 825MW. Prices decreased towards the end of the month due to a resurgence of wind on the system, the return of the East-West Interconnector after a planned outage and a falling NBP prompt.”

In other news, it was confirmed that wind energy in Q1 2019 accounted for 37% of Ireland’s electricity supply, up from 35% the previous year; Ireland’s wind farm capacity is now 3,700 MW, an increase of 12% from the start of 2018.

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