Irish wholesale gas prices in May are down 37% year on year despite a slight rebound over the last month, according to the latest Wholesale Energy Market Report published by Vayu Energy. The company, which supplies gas to 20% of Ireland’s industrial and commercial market, states that the collapse in prices over the last twelve months is due to ongoing over-supply of gas in Europe and reduced demand.
The average day-ahead price for gas – the contract for gas delivery for tomorrow – is 1.31 c/kWh (cents per kilowatt hour) so far in May, close to a six-year low. This compares with average prices of 2.08 c/kWh in May 2015 and of 1.27 c/kWh last month.
Irish wholesale gas prices are now 41% lower in euro terms compared with the average monthly price recorded for May over the previous three years (2013-2015). This is having a significant impact on the energy costs of many Irish businesses purchasing gas on the wholesale market, particularly for users in the industrial and commercial segment.
Joanne Daly, Senior Energy Analyst at Vayu notes that despite the overall weakness in the market, prices increased by 3% in May compared to April due to a number of factors including unplanned outages in the North Sea and colder weather spells during the month. A recent weakening in the value of the euro against sterling has also resulted in upward pressure on Irish wholesale gas prices, given that the majority of natural gas consumed in Ireland is currently sourced from the UK wholesale gas market. Ms Daly states that ongoing uncertainty around the UK’s referendum on EU membership is likely to contribute to volatility in sterling over the coming weeks, which will impact on gas markets.
Commenting on the outlook for prices this summer, Ms Daly states: “While Norwegian gas production remains very strong by historic standards for this time of year, the Norwegian maintenance season is due to commence. Planned outages at a number of large gas fields could greatly reduce the flexibility of the system and contribute to price volatility. However this should be offset by continued robust supply of LNG (liquefied natural gas) from the Middle East which will help the system meet demand.”
“The Norwegian maintenance also coincides with the UK’s largest storage facility going offline until the end of June. This will result in a significant reduction in storage injections during the period, thereby reducing demand within the system when supply sources could be tight,” says Ms Daly. “Overall, however, healthy supplies and lower demand due to warmer weather means we could see prices drop during the summer months.”
Electricity and Wind Energy Update
The average wholesale price of electricity in the Irish market so far during May is 3.61 c/kWh – a decrease of 30% compared with May 2015 (5.13 c/kWh) and an increase of 3% compared with last month. The year-on-year drop in prices is attributed mainly to lower prices for gas, which is the main energy source used to generate electricity in Ireland. A strong contribution of renewable sources such as wind has also been a significant factor.
Ms Daly notes that increased wind energy is playing an ever more important role in meeting Ireland’s electricity demand, helping to drive down prices and reduce the country’s dependence on more expensive sources of energy. Total wind generation capacity in Ireland now stands at 3,078 MW. Wind energy has accounted for 18% of overall electricity generation so far during May, reaching a peak of 2,236 MW on the 2nd May when it met 56% of demand at the time. Some 13,606 gigawatt hours (GWh) of wind energy has been generated in Ireland since the start of the year, representing 23% of total electricity demand during this period
Note: As part of EU Renewable Energy Directive (2009/28/EC), Ireland’s target is for 16% of total energy consumption to come from renewable sources by 2020. Electricity generation from renewable sources has a sub-target of 40% in order to meet that 16%, and renewable transport and renewable heat have their own sub targets. In order to meet these, a sizable amount of renewable energy needs to be added to the fuel mix.