January 2018

Most of you will have seen my note on the 12th Dec 2017 when we had a couple of unpleasant surprises in the gas market in tandem which caused a huge (but temporary) surge in gas prices. I am not going to get into the detail here but briefly – there was an explosion at the Baumgarten gas hub in Austria and a crack discovery in a North Sea pipeline (Forties Pipeline system in Scotland) and  these events where then amplified by a cold snap AND maintenance issues at the large Norwegian Troll field.

You can see the spike in the gas price in the graph in the forward curve gas prices below. The top purple colored line is the forward curve gas price for NBP in Q1 2018. Although 60% of Ireland’s gas now comes from Corrib in Mayo, the Irish gas price follows the UK NBP price. The next day we briefed our procurement group members that aside from an short term increase we did not think this would have a significant effect on prices in the months ahead.  It turns out we were correct as  the Austrian supply disruption was brief and had little direct impact on physical UK (& Irish) supplies. The North Sea pipeline was more significant for Irish pricing as  it increased the market’s sensitivity to other events – such as further cold snaps and any unplanned outages.  The latest news is that the Forties North Sea pipeline has now been repaired and will return to normal flow rates early in the New Year.

 

 

In the SMP graph of Irish electricity prices below we do see prices pick up a little during mid month but within the normal seasonal ebb & flow range.

Sometimes we do read scare stories in the media about energy prices and events such as the above and worried clients do call me about them. One question you might be wondering is that when we make market calls like this – is it just guesswork or do we have a way of telling how things are likely to play out?  Well it’s not guess work:

– A good clue of the likely effect on prices could be seen on the forward curve graph below. Although NBP (red line) for Q1 had run much higher, forward curve prices for the other periods were flat. This suggests the market does not see any shortage of supplies next year.

– we also saw that shipments of LNG can be brought in within a reasonable timeframe. It takes about two weeks to bring LNG from Qatar, the U.K.’s biggest supplier of LNG. Tankers from Russia’s new Arctic plant Yamal could arrive in about five days and indeed the very first shipment from Yamal (170,000 cubic tonnes of LNG) was diverted to the UK . Russian media seized on the delivery of the LNG to claim it would “keep Britons from freezing this winter” while the Russian embassy in the UK tweeted: “Feeling cold? Help is on the way.” Now that Forties is back on-line it may be sold elsewhere.

So it’s not guess work, understanding the supply situation and reading price signals from traders is key (prices are forward looking).  BUT you do need to understand that a surprise random event can always change the outlook. It is important to appreciate that nobody can predict the future. The recent news from Iran is a reminder that the middle east has always been a powder keg and events there can move prices without warning.

For  Irish electricity prices, 2018 is likely to be particularly tricky as we are going to see the biggest change in how electricity is priced in many years as I described in earlier newsletters. I would encourage readers to get expert advice.

 

SEAI annual report & EXEED

SEAI published their annual 88 page report which has lot of numbers about Irish energy trends for anybody interested in the developing national energy picture.

https://www.seai.ie/resources/publications/Energy-in-Ireland-1990-2016-Full-report.pdf

SmartPower is a big fan of the SEAI as they really have a lot of great grant assisted energy saving programs which add huge value to people participating in them. For example, in the last two SmartPower has completed 10 EXEED (Excellence in Energy efficient Design) programs with the SEAI. This year we plan to cap the number of clients we work with on this program and will have a cut off date early in the year for new projects. If you are interested in doing an EXEED project, you will need to get in touch with us before the end of January. 

 

Renewables

In the past few years Renewables have grow faster that almost anyone predicted. Some people even predicted (and there are plenty of naysayers still around) that renewables would never account for more than 10% of supply (at any one time). We have already seen some smaller countries like Denmark and Portugal run on 100% renewables for electricity generation for days at a time and even the huge German economy reached 85% of electricity produced from renewables (wind, solar, biomass, and hydroelectric power during the long May 1 holiday weekend),

To be fair to the naysayers, there are still many days in Germany where wind and solar provide less than 10% of demand or even much less if there is no wind on a dark day in winter. (Sometimes the challenges of renewables can be glossed over).

In Ireland renewable electricity generation accounted for 27.2% (normalised) of gross electricity consumption in 2016. If we take into account total energy consumption which includes transport the contribution of renewables to gross final consumption (GFC) was 9.5% in 2016. The 2020 target for Ireland is 16%. We should bear in mind that Ireland has a far better renewable resource than Germany because of all the wind here. You can get an idea of how much potential we have in Ireland from a video I made here.

https://www.youtube.com/watch?v=YMs5Gwr1VgU

From the SEAI report we can see that the combination of renewables and the Mayo gas Corrib field coming on-line has reduced Ireland’s energy import dependency from 88% in 2015 to 69% in 2016. As a result, the energy import bill for Ireland fell from €4.6 billion in 2015 to €3.4 billion in 2016.

 

World energy outlook

Oil prices have been acting strongly due to a combination of Iranian news and the on-going supply cuts led by OPEC & Russia with crude rising to mid-2015 highs. Lots of eyes are on US production numbers as the Trump administration opened up the Gulf of Mexico drilling blocks which Obama had closed.The opening of Alaskan oil fields (which has huge reserves) next to North Slope production zones could potentially increase US production in 2018.

We have to keep our eye on these developments.

 

Irish wholesale electricity prices 

The average Irish SMP price in Dec 2017 was 5.77 c/kWh up from 5.69 in Nov. An increase but not bad considering the scare described above.

 

 

EUR/GBP analysis

This currency pair is still trading in a range which reflects the fact that the UK and Europe are still stuck in a state of both financial and political limbo with over a year before the talks are due to finish on the terms of the UK exit.