Never Have So Many Factors Influenced UK Gas Prices

Back in the days when British North Sea natural gas reserves were at full throttle Britain use to be self sufficient for natural gas. In those days only a couple of factors had major influence in UK gas prices, they were weather and demand, the golden days as many energy brokers referred it. Nowadays the UK gas and energy market has grown more complex with several factors influencing prices on a daily basis.

In 1998 the first gas pipeline between UK and continental Europe was opened which automatically hooked British gas prices to European oil indexed prices. That was when British prices started to be influenced by marginal factors.

This is how it works. When crude oil prices rose, so did natural gas prices for continental Europe and consequently the UK, because of pipeline connections to Europe. Since UK gas prices aren’t completely hooked up to European oil indexed gas prices, gas in the UK becomes cheaper than in continental Europe and European gas traders end up buying gas from the UK. That is when the demand in increased and UK gas suppliers put their prices up to stop the flow to continental Europe and to contain the price surge in the UK gas market.

One factor that recently started to play an important role in the British gas and energy market was LNG imports. Liquefied Natural Gas imports brought a global component to business and commercial gas prices. Predictions are that in a few years time the UK will be importing as much as 50% of its total gas supply needs from LNG which will make UK gas prices compete with American and Asian markets.

The biggest issue with LNG imports is where to store it. Britain is lacking LNG import terminals but the issue is being addressed with two new large terminals under construction in Wales and the expansion of the Isle of Grain should increase UK’s LNG storage capacity considerably.

Commercial and business gas prices continue to be influenced by weather and demand but as afore mentioned not as much as it use to. Proof to that is what happened the past winter, when temperatures were way below seasonal average pushing gas for heating consumption to extremely high levels and instead of going up wholesale gas prices dropped.

As if energy brokers didn’t have enough to worry about, two new factors are concerning energy brokers across the land. It first started with the turmoil in Egypt that extended to Libya which made crude oil prices surge over the $120 US Dollar mark, causing a rally in the UK gas market. As a consequence UK gas prices climbed to its highest levels in more than 21 months.

The second factor that is taking away the sleep of UK energy brokers is the earthquake and tsunami that devastated part of the eastern coast of Japan. You may ask why? The answer is simple, Japan is the biggest LNG importer and a reduction in its nuclear energy generation increases the likelihood of LNG tankers being diverted from the UK to Japan, as the second biggest Japanese energy generation resource is gas power plants.

As you can see the UK Energy and Gas Market are more complex than what many people think. Now imagine you having to watch all those factors in order to find the cheapest business gas and business energy prices for you company. You wouldn’t have time to focus on what really matters for your business. That is why when it comes down to finding the best deals in gas or energy it’s best to leave it to the professionals: Energy Brokers.

If you would like more information on our range of energy services 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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Despite Qatar’s Japan LNG Deal UK Gas Prices Fall

After Saturday’s announcement of a new LNG deal between Qatargas and Japan, UK gas traders and energy brokers predicted higher gas prices and consequently firmer energy prices. But surprisingly the contraire happened and prices eased earlier this week.

Qatargas, which has become one of Britain’s major LNG suppliers closed a deal with Japan where it will be sending more than 60 cargoes or 4 million tonnes of LNG over the next year.

This new deal between the world’s largest LNG producer and the world’s largest LNG importer means that less gas will be coming to Europe from Qatar than was likely before Japan’s nuclear crisis. This will force European buyers to import more gas from the UK, causing a surge on UK gas prices.

Surprisingly none of this has happened so far and thanks to a steady fleet of LNG tankers expected to arrive this week, strong supply from Belgium and the Netherlands as well as weaker oil prices British gas prices fell for two days in a row.

Even the most experienced gas traders and energy brokers in the country were surprised by weaker gas prices, especially after the record breaking LNG deal between Qatar and Japan.

“We really didn’t see that one coming” said Chris Hurcombe business gas and energy broker here at Catalyst Commercial.

Gas for Monday and Tuesday were traded at 56.75 pence per therm down 1.75 pence from Friday’s close. Winter contracts fell over a penny to 71.75 pence per therm a May contracts closed at 58.10 down 1.35 pence.

Backed by lower gas prices UK energy prices also fell, with baseload contracts for Tuesday closed at 51.25 pounds per megawatt hour and May contracts traded at 51.30 pounds, 40 pence lower than the previous session.

If you would like more information on our range of energy services 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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IEA and IMF Announcements Pulled Oil Prices Down

At the start of the session on Monday Brent crude oil was being traded above $127 per barrel and dipped below $125.50 later in the same session, after Saudi Arabia assured it can pump more oil if needed and hopes of a peace settlement in Libya. On Tuesday prices continued to drop after announcement of the IEA and the IMF that crude prices above the $100 are starting to hurt global economy.

The International Energy Agency report showed that high prices are already starting to dent oil demand while the IMF Economic Outlook predicted that US and Japan economies will expand at a slower pace than previously predicted. As both countries are the first and third largest oil consumers the report had a direct impact in oil prices that slid as much as $4 from Monday to Tuesday.

At the time of writing Brent Crude oil prices were being traded at $123.56 after falling as much as $2.01, or 1.6 %, to $121.97 a barrel on the ICE Futures Europe exchange in London.

Falling oil prices dragged UK gas prices with it and Winter 2011/12 gas eased trading at 73.50 pence per therm and despite a disruption in supply from Norway where a gas field was shut down due to a gas leak, spot gas prices also backed a little and where trade at 59.00 pence per therm thanks to strong LNG supply.

May gas contracts prices also registered a slightly reduction and were traded at 61.30 pence per therm down 0.10 pence while prices for the third quarter fell nearly half a penny to 64.30 pence.

Despite a secured line of LNG tankers already on its way to Britain gas brokers are concerned LNG terminals won’t be able to compensate further supply disruptions.

Backed by lower gas prices, OTC (over-the-counter) energy prices also fell with the MWh being sold at 50.90 pounds, 85p lower than previous sessions. The restart and reintegration to the grid of Hartlepool 1 nuclear reactor on Monday also influenced lower energy prices.

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Brent Crude Hits Highest Levels since Financial Crisis

Brent crude oil prices hit a 2 1/2 year high and firmed at $121.06 yesterday. Concerns of a disruption in supply due to the unrests in the Middle East and the lowest US unemployment rate in two years were the major factors for this surge in oil prices.  Last time Brent crude oil prices traded above the $120 mark was back in September 2008, right in the middle of the financial crisis. According to some analysts we have reached a “danger point” and if oil prices continue to rise global economy could suffer an inflationary shock putting global growth to a halt.

Estimates from the International Monetary Fund suggest that every $10 increase on oil prices shaves 0.2pc off world growth. Before the turmoil started in the Middle East Brent crude oil was being traded at around $98 to $100 a barrel, so with prices now at the $120 mark we can conclude that global growth will retract 4pc, based on the IMF estimates.

Over the past few days’ oil prices surged from $115 to $120. Market analysts stated that such increase was a “cumulative impact” of weeks of unrests in the Middle East, especially with military action in Libya showing no signs of an easy resolution.

Speaking to The Telegraph Paul Horsnell, head of commodities research at Barclays Capital, said:

“Oil at $120 is a psychological level and it looks like it could be a trigger number, with markets suspecting something on the supply side from Saudi Arabia or OPEC. Spare capacity is becoming more limited and there is concern about the next supply outage.”

Paul Horsnell wasn’t the only analyst questioned by The Telegraph over the surge in oil prices. In the article “Oil rises above $120: what the analysts are saying” renowned market analysts explained why Brent crude oil prices peaked.

What affects will higher Brent crude Oil Prices have in the UK economy?

So it has already doubled the Monetary Policy Committee’s 2pc target at 4pc as climbing oil prices could accelerate inflation. The Office of Budget Responsibility has already estimated an increase of 0.5 percentage points in inflation this year due to the increase in oil prices since November 2010.

Not to mention other commodities that are directly and indirectly tied to crude like energy and gas. Higher oil prices means higher energy and gas prices.

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Energy Market Report April 2011

Our monthly analysis of the UK gas and power markets is now available on line for the month of April 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 April 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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