Irish wholesale gas prices were 30% higher on average in July compared with July 2014, when they reached four-year lows, according to the latest Wholesale Energy Market Report published by Vayu Energy. The company, which supplies gas to over 20% of Ireland’s industrial and commercial market, states that the year-on-year increase was due to a weaker euro, higher demand for gas and lower storage levels throughout Europe compared to last year.

An 11% fall in the value of the euro against the pound sterling over the last year has made euro-equivalent purchases more expensive in the UK wholesale gas market, the source from which Ireland purchases its natural gas. This has been compounded by a significant increase in the average day-ahead price on the UK NBP gas market*, the contract for gas delivery for tomorrow. Year on year, UK day-ahead prices were up 16% in July, trading on average at 43.7p (sterling pence per therm).

The report reveals that the gas market regularly experienced undersupply in July as a result of a combination of increased demand and restricted flows from Norway due to network maintenance. Sources of higher demand included European storage facilities replenishing low inventories of gas, increased consumption by the power sector in Europe due to a drop in wind generation, and a redirection of gas to southern Europe as a result of a heatwave.

Commenting on the low levels of gas storage across much of Europe in recent months, Gillian Lawler, Senior Energy Analyst at Vayu notes that inventories in major European storage hubs are down 22% compared with this time last year. While injections into storage usually commence in April, most facilities waited until July before replenishing inventories this year when cheaper oil-indexed gas became available to inject. Storage stocks in the UK have now increased from a level of 38% fullness at the end June to a level of 52% at the end of July. This compares with 85% fullness across the UK at the same point last year.

Ms Lawler states that prices experienced further upward pressure as a result of collapsed talks between Russia and Ukraine on an agreement over a price plan for the third quarter of the year. This has seen gas imports to Ukraine halt, a shock to the market which had expected a pricing and transit agreement to be in place for the winter. The ongoing tensions are of significant importance given Ukraine is a major transit corridor for Russian gas to European markets, with Russia providing approximately a third of Europe’s gas demand – half of that coming via Ukraine. While both parties have made assurances that the renewed dispute will not affect flows to European buyers, Ms Lawler states that the lack of an agreement is a risk when taking the storage shortage into consideration.

On the supply side, the report reveals that Europe continues to benefit from a surge in global production of LNG (liquefied natural gas) with new sources coming on stream and Asian demand remaining weak. Ms Lawler says: “LNG has been a key component in the gas supply mix so far this year, with shipments from the Middle East increasing significantly. Further growth in supply is expected to exert downward pressure on prices in the coming months as demand from Asian markets such as Japan and Korea remains low.”