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As of the 6th July, Gas and Electricity Year Ahead Wholesale costs have increased when compared to
last month’s report.
Oil is $77 a barrel from $76 last month. The Organisation of the Petroleum Exporting Countries (OPEC)
meeting on the 22nd June saw agreement to increase Oil production, which was followed by Russia. It
is understood this may add an additional one million barrels a day. Unfortunately, there have also been
disruptions at similar levels, adding pressure to prices. The US decision to withdraw from the Joint
Comprehensive Plan of Action (JCPOA) is also likely to restrict Oil exports from Iran.
Coal demand from Asia continues to push prices to a near five year high. This is an expensive form of
generation, contributing just 1% in June. Future demand forecasts make it unlikely there will be any
short-term reductions.
LNG deliveries and the closure of the Interconnector, which we use to export Gas to the continent, did
allow the opportunity to increase our depleted Storage levels. These will need to be filled before the
start of the Winter season, to avoid considerable volatility during cold spells. Since the re-opening of
the Interconnector, Gas exports have resumed and costs increased, due to an undersupplied system
and the need to use Storage. Another pressure, is the high Oil price and the contractual links between
it and Gas.
46% of generation came from Gas in June, the highest level since April 2017. This influenced Electricity
prices in the form of higher generation costs and contradicted a National Grid report. This gave hope,
that this summer, we may have surplus supplies of Electricity, due to periods of excessive Wind and
Solar. Wind contributed just 9% in June from 12% last year, with little change so far in July.
We still wait for the perfect weather conditions to make use of Wind and Solar, which should
substantially reduce the reliance on Gas for generation, lowering costs. This position is not likely to
change in the short term.
Longer term, improved Renewables and pressure being applied to Oil producing nations to increase
production, may allow for some easing of prices. However, the potential impact on Oil production due
to sanctions against Iran and pressure from global trade barriers, could undermine this.
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 just 42% of the Electricity bill and that is excluding the supplier margin, metering and VAT.
We would be happy to research your options for 12, 24 and 36 month contracts.
On the 6th July, the Gas Year Ahead Wholesale cost was 59.26 (p/th), from 56.82 (p/th) in last month’s
report and 42% higher than 2017.
Oil prices continue to support higher Gas costs, with supply disruptions from various global sources. The
US decision to withdraw from the Joint Comprehensive Plan of Action (JCPOA), is adding concern, with
the likely loss of Iranian Oil production. OPEC and Russia have said they will increase supplies by, in the
region of, one million barrels a day. However, other sources have decreased by this amount.
We recently had a number of LNG deliveries and a period where the inability to export Gas to Europe,
allowed us to replace some of the depleted Storage. This does allow improved confidence, but we have
since resumed exports and withdraw from Storage facilities.
The use of Gas for generation is at the highest level since April 2017, due to a disappointing Renewables
contribution. More favourable weather conditions could substantially change this, allowing the easing
of prices.
Let us know if you would like us to research your options for 12, 24 and 36 month contracts.
03 Electricity Market
On the 6th July, the Electricity Year Ahead Wholesale cost was 57.37 (£/MWh), from 55.70 (£/MWh) in
last month’s report and 32% higher than 2017.
Electricity prices have followed Gas higher, as it made up 46% of generation in June. Gas itself is being
pressured by an undersupplied system and Oil production concerns.
The National Grid is expecting Renewables to considerably reduce the amount of Gas needed through
the Summer. So far, Solar has performed well, but Wind contributed just 9% in June, the lowest level
since August 17, despite the additional turbines.
Wholesale costs are currently lower for 2019 and 2020, illustrating both the premium built into 2018
and a more positive outlook.
Third Party Charges continue to increase regardless of how the Wholesale element changes, which has
been very evident as we look to secure contracts for customers. These charges pay for the mechanisms
which secure generation at peak periods.
Let us know if you would like us to research your options for 12, 24 and 36 month contracts.