UK Wholesale Energy Prices Scrape One-Year Lows as Risk of Cold Snap Dissipates

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Jan 16, 2014, 05:58 ET

LONDON, January 16, 2014 /PRNewswire/ --

Wholesale energy prices on Britain's gas and electricity markets fell to scrape the lowest levels seen in more than a year this week, according to ICIS data. Such falls could see pressure build on energy suppliers to lower household bills, with wholesale markets having been cited as driving bill increases at the beginning of the winter.

An unusually mild winter has depressed energy consumption across the country, while record supplies of wind power and a glut of gas in storage have combined to apply heavy downward pressure to markets since the beginning of the year.

"It is too early to rule out a late-winter cold snap," said ICIS UK power market analyst, Jamie Stewart. "Even if this were to happen however, supply is in good shape and is geared to cope. Energy traders have recognised this, and contracts have been heavily sold on the forward market.

"But as we have seen in recent years, extreme cold weather has developed a habit of biting the UK very late in the winter. The high-risk period is far from over."

ICIS UK gas market analyst Tom Marzec-Manser said: "Gas demand is weak because of mild weather, and withdrawals from storage sites are very low. This means refilling them over the summer in readiness for the following winter could be less of a burden, and as a result the summer price has been falling."

On the UK power market, the key contract for power to be delivered this summer traded at £48.00/megawatt hour (MWh) on Wednesday - the product's lowest ever traded level. On Tuesday it closed at £48.40/MWh, just £0.30/MWh above what would have been an 18-month low, according to ICIS data.

While at Britain's natural gas market, the corresponding product closed on Tuesday at 62.55 pence per therm (p/th), its lowest since 1 October last year. Had it fallen further it would have been the lowest close since New Year's Eve 2012.

Any fall in energy costs would be a further boon for UK inflation figures, which in the year to December fell to the government's 2% target for the first time since November 2009. Spiralling energy costs have been cited as a major driver as the UK has struggled with inflation in excess of 5% in recent years.

About ICIS

ICIS is the world's largest petrochemical market information provider and has fast-growing energy and fertilizer divisions. Our aim is to give companies in global commodities markets a competitive advantage by delivering trusted pricing data, high-value news, analysis and independent consulting, enabling our customers to make better-informed trading and planning decisions. We have more than 30 years' experience in providing pricing information, news, analysis and consulting to buyers, sellers and analysts.

With a global staff of more than 800, ICIS has employees based in Houston, Washington, New York, London, Montpellier, Dusseldorf, Milan, Mumbai, Singapore, Guangzhou, Beijing, Shanghai, Yantai, Tokyo and Perth. ICIS is a division of Reed Business Information, part of Reed Elsevier Plc.

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Jamie Stewart
ICIS
UK electricity market analyst
t: +44(0)20-7911-1933
e: [email protected]

Tom Marzec-Manser
ICIS
UK natural gas market analyst
t: +44(0)20-7911-1964
e: [email protected]

SOURCE ICIS