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Irish wholesale gas prices 4-year low

Monday, July 28 10:23:32

Irish wholesale gas prices hit fresh four-year lows in July before seeing a limited rebound due to heightened geopolitical tensions between Europe and Russia.

That's according to the latest Wholesale Market Report by Irish energy supplier Vayu.

It said that, while the situation in Ukraine continues to pose a risk, its impact on gas prices in Europe is offset by strong supplies, low summer demand and a build-up of larger than normal gas inventories.

Suppressed demand due to warmer weather conditions has been a major driver of lower gas prices year to date. Combined with increased shipments of LNG (liquefied natural gas) from the Middle East, this has resulted in strong stock-piling in the UK market, which is the major source of gas supply into Ireland. Gas storage now stands at 95pc capacity - compared to just 67pc this time last year which represents 45 days of supply if withdrawing at maximum rates.

Gas prices for next-day delivery finished trading on Friday (25th July) at 40.50p, down 39pc since the beginning of the year and 38pc lower than at the same point in 2013. This weakness has also fed into lower pricing of gas for the August-2014 contract and other gas contracts due to expire over the next three months. However, market fundamentals suggest that prices have reached a floor with demand unlikely to weaken much further. Increased gas demand in the electricity power generation sector acts as constraint on any further drops.

Joanne Daly, Senior Energy Analyst at Vayu states: "While there is little prospect of any significant rise in wholesale prices at present given the strong levels of gas supply, this could change depending on the crisis in Ukraine. Any increased risk to the supply of Russian gas destined for Western Europe would feed into upward pressure on both near and long-term prices."

Ms Daly notes that Russia meets almost a third of European gas demand, and it pipes almost half of these supplies via Ukraine. Markets are therefore continuing to factor a political risk premium into prices. Previous disputes over gas pricing and volumes have led to three disruptions over the past decade, and some traders fear the tense situation this year may result in a repeated cut-off.

For more visit: www.businessworld.ie