Understanding the Fluctuation of UK Gas Prices

With the decline of North Sea gas production the UK went from being self sufficient and an exporter of natural gas to being a net importer. This has caused many changes to the UK gas market, mainly in business and commercial gas prices volatility.  Back in the days when the UK was self sufficient for natural gas few factors influenced gas prices. They were weather and demand, nowadays, the UK gas market has become more complex and several factors have a direct effect on prices.

Since 1998 when the first pipeline between the UK and Europe was opened UK gas prices were automatically hooked to European oil indexed prices. Since then, UK gas prices were determined by marginal transactions. Basically if oil prices raise so does UK gas prices.

Recently a new factor has come into play which brought a more global component to business and commercial gas prices, the imports of LNG (liquefied natural gas) cargoes. According to industry experts, over time LNG imports could account for 50% of total UK gas supply which will make UK gas prices compete with American and Asian markets.

The biggest issue with LNG imports nowadays is where to store it so a number of LNG import terminals are under construction, with two new large terminals in Wales due to be completed later this year and further expansion at Isle of Grain near London.

Weather and demand still have their influence in business and commercial gas prices. But this winter gas traders saw a different scenario; with temperatures way below seasonal average which pushed gas for heating consumption to sky high levels, wholesale gas prices dropped.

Normally with the colder weather gas price tend to rise due to an increase in demand. This winter a steady supply from Norway and the Netherlands plus strong LNG imports kept the gas prices at low levels.

“Before trading gas in the UK Market was rather simple. Now things have become more complex and we have to keep an eye on several factors in order to deliver the best prices for our costumers” stated a business gas broker.

To sum things up, natural gas is an important factor of the UK fuel mix in electricity generation and it has great influence in UK energy prices.

If you would like more information on our range of business gas services or how we compare gas prices, or would simply like to find out how this could benefit your business, simply call our energy team today on 0870 710 7560 or request a call back at time to suit.

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UK Business Gas Prices are on the rise

Colder Weather, Oil and Nuclear Reactor Outages influencing gas prices

The colder weather forecasted for this week and the rise of oil prices, are forcing UK gas prices to go up. But strong supply from the continent and steady LNG gas imports kept a cap on gains.  Surprisingly on Monday, gas demand forecasts were 6 percent lower than seasonal levels. Last week demand had been 10 percent lower year on year, according to National Grid data.

According to forecasts from the Met Office temperatures will plunge this week which will lift the demand for gas used for heating.

“We’ve seen a move to colder weather but it’s nothing serious. There is plenty of gas around but still plenty of buyers out there,” one business gas trader.

On Monday a gas price for day-ahead delivery rose 1.50 pence from the previous session and was traded at 55.35 per therm.

The rise on UK gas prices could’ve been worst if it wasn’t for strong gas flows from LNG terminals and imports from Norway and Netherlands, transporting nearly 100 mcm into the British gas market.

“A lot of gas has been injected over the weekend and more today that should last us into March easily, as there doesn’t seem to be any serious cold weather on the horizon,” said another business gas broker.

Meanwhile, with oil prices closing in on $100 US Dollars a barrel, UK gas prices are likely go up too as both fuel prices are closely linked.

On the other hand, despite a scheduled nuclear reactor outage and low wind power generation forecasts, business energy prices remained steady. Spot price traded at 47.35 pounds per MWh on Monday.

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Business and Commercial Gas Prices Drop with Mild Weather

UK gas prices plunged to seven week lows to levels last seen before the cold snap. Milder weather and strong supply from LNG terminals kept the market well supplied pushing business and commercial gas prices down.

On Monday gas for day ahead and February delivery fell to prices similar to November, before we were hit by the coldest spell on record. Spot prices fell 1.55 pence and were traded at 54.75 pence per therm, while gas for delivery in February was traded at 55.00 per therm, 1.20 pence lower than previous sessions.

“Weather and LNG supply are weighing on prices.  Some may be going short here with the idea that it has room for downside in the week,” said a business gas broker.

With weather forecasts predicting that North West European temperatures will rise 1 to 6 degrees Celsius over the next 5 days. The biggest question now is how far gas prices will drop.

Energy and gas brokers are having a tough time this winter predicting energy and gas prices.  Back in mid December when the coldest spell on record was forecasted UK gas prices dropped. The same happened last week when gas prices plunged 60p for spot contracts.

In both cases strong supply from the continent and steady imports on LNG helped gas prices drop despite the cold weather. Now we are experiencing a more logical scenario.

Temperatures are climbing and business and commercial gas prices are falling. Which is easier to understand even though gas demand remained above seasonal averages.

“All seems to be about the weather today. There is still potential cold weather at the back end of the forecast but everyone is looking at warm weather over the next few days,” one energy broker said.

The power market is also looking strong thanks to gas. Despite loosing two nuclear reactors over the weekend, day-ahead power contracts traded at 48.00 pounds per megawatt-hour (MWh), 2.20 pounds below the previous session.

But with Dungeness B-21 and Hartlepool 1 reactor expected to go offline on January 15 and January 17, respectively, supply margins could tighten pushing energy prices up.

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Our monthly analysis of the UK gas and power markets is now available on line for the month of January 2011. The service is intended to keep you up to date with all the major news in Europe’s gas and power markets. It is also designed to keep power executives focused on market activity in an easy to digest format.

Your find our January 2011 report here and all historical energy reports can be located here.

If you would like more information on our services or would like to find out how this could benefit your business, simply call our energy team today on 0870 710 7560 or request a call back at time to suit.

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Energy Prices Drop Despite The Cold Weather

Despite going through one of the coldest winters in history, UK energy prices dropped. Strong gas supply from Norway, imported LNG and the restart of a nuclear reactor helped bring household and business energy prices down.

Normally when temperatures drop gas prices go up. This winter temperatures are several degrees below seasonal average which should have rocketed gas prices. Energy prices are highly influenced by gas prices, so every time gas prices go up energy prices soon follow.

“Everything has traded lower on gas,” said an energy broker.

Back in December we reported that UK Business Gas Prices Drop despite Forecasted Cold Spell, at the time a strong supply from Norway and Netherlands plus strong imports of LNG forced gas traders to lower their prices.

The same is happening again. National Grid data showed Norwegian gas via Langeled was flowing 69 mcm/day, while the Interconnector was adding 12mcm/day and Britain’s LNG terminals were supply around 90 mcm.

Gas prices for Wednesday dropped 60p for spot contracts compared to late December and were traded at 57.80 pence per therm. Gas for February and March was down 2 pence and was traded at 57.80 and 57.50, respectively.

In the power market energy prices followed and British baseload power prices for delivery on Wednesday was 49.85 pounds per megawatt-hour (MWh) and 55 pounds per MWh in peak, down GBP1.65 per MWh.

On the N2EX wholesale power exchange, the day-ahead power auction cleared GBP3.51 lower than the previous day at GBP48.65/MWh.

But gas wasn’t the only reason energy prices dropped. The restart of Oldbury 2 220 MW nuclear reactor and its reintegration to the grid also played an important role in plunging UK energy prices.

There are also energy brokers that believe floods in Australia might influence UK gas and energy prices if coal supply is interrupted. UK coal surplus is high which means it won’t affect prices just yet.

Further more, weekend base was heard at GBP48/MWh, down GBP3 from the previous weekend, and week 2 base was offered at GBP50.75/MWh.

If you would like more information on our range of energy broker services or would like to find out how this could benefit your business, simply call our energy team today on 0870 710 7560 or request a call back at time to suit.

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