The cost of buying natural gas on the wholesale market in 2016 dropped on average 19.2% compared to 2015 according to the 2016 Energy Review published by Vayu Energy today. The average day-ahead price was 34.6p/therm (1.38c/kWh) in 2016 compared to 42.8p/therm (1.71c/kWh) in 2015.
The first six months of the year was dominated by multi-year low gas prices as markets were impacted by the impending vote on Brexit, strong supply and weak demand. Day ahead prices ranged between 28p – 31p per therm in February, the first time in over 4 years that day-ahead prices for any month were sub 30p. However, towards the end of the year, prices gradually increased as winter demand kicked in, coupled with concerns about long term supply. 2016 day-ahead prices peaked on the final trading day of the year the 30th of December. Curve prices also strengthened as the year came to a close. Oil was the main driver as OPEC, and non-OPEC oil exporting nations agreed to curtail exports of crude oil starting in January 2017. Winter-17, the next traded winter contract, rose 8% over the course of December mirroring the prompt market and closing the year at its highest traded price. Fortunately for large energy users in Ireland, the drop in sterling benefitted end users buying gas in euro.
Keith Donnelly, Senior Analyst at Vayu stated that lack of storage played a major role in energy prices for 2016. “The NBP* was hit with a major shock in July in the form of an extended outage at the UK’s largest and only long term gas storage facility (Rough). The immediate impact of the suspension of gas injections at the Rough facility was a spike in winter prices. Rough can supply up to 10% of the UK’s peak winter gas demand, so any issue will have a serious impact on supply. Long term concerns remain for Rough and will likely play a hand in Winter-17 gas prices and further out. Oil was also a key driver as OPEC, and non OPEC oil exporting nations agreed to curtail exports of crude oil starting in January 2017. However, on a more positive note, high levels of supply should help dampen some of the bullish sentiment”.
2016 Electricity and Wind Energy Update
The average wholesale price of electricity decreased by 17.9% in 2016, driven by significantly lower gas prices and a strong renewable presence in the fuel mix. The average wholesale price of electricity in the Irish market in 2016 was 4.18c/kWh compared to 5.08c k/Wh in 2015.
During the first 4 months of the year electricity prices dropped month on month, primarily due to falling gas prices. During Q3, electricity decreased again due to increased renewable energy on the grid and falling gas prices. However, the market saw an acute increase in electricity prices during the month of October due to a number of contributing factors. The final quarter of the year saw the electricity market move in an upward trajectory as seasonal demand and unforeseen developments in the French nuclear power market put pressure on prices, in addition to a 9% rise in oil prices in October. Wind generation during the month of November had notably declined which would have applied further upward pressure on prices. Wind generation met on average 21% of electricity demand during 2016, reaching a peak of 2,827MW on 23 December having the potential to meet over 56% of total electricity demand on the island of Ireland at that time.