Wholesale energy prices rise as winter sets in

The price of gas and power on the UK wholesale energy markets showed steady increases in November as colder weather continues to drive demand higher while lower wind output and nuclear outages kept supply margins tight.

The price of electricity and gas for near-term delivery rose 6 per cent and 9 per cent respectively last month compared to average October prices, according to market analysts at Platts.

The price reporting agency said that reduced wind power output combined with constrained nuclear output due to outages helped to bolster pricing levels as the UK increased its use of more expensive gas-fired power in order to meet rising temperature-led demand.

However, average electricity prices were still 8 per cent lower in November than they were in the same month last year in large part because the cost of wholesale gas is 20 per cent below where it was priced last November.

The UK’s gas storage levels have been significantly healthier this year following a mild 2013/14 winter season, resulting in persistently lower pricing levels despite concern over Russian gas supply disruptions earlier this year.

Platts analyst Alex Froley said the heavy year-on-year losses were also due to a combination of bearish market factors which have permeated the energy market complex.

“On an annual basis the market is responding to a weakening in the wider energy sector, with Brent crude having plummeted in the second half of this year, from $110/barrel in June to $71 at the end of November,” Froley said.

The European gas market has been relatively comfortable so far this winter, with no major cold snaps to date, and none forecast in the immediate future, Froley added.

In addition Russia and Ukraine have struck a deal on Ukraine’s gas supplies, reducing transit risk, and Asian spot liquefied natural gas prices have been falling in recent weeks, reducing global competition for LNG, he said.