Cold weather and supply constraints drive up energy prices

The Bord Gáis energy index, which measures wholesale energy prices, rose 11 per cent last month as unseasonably high demand coupled with gas supply constraints pushed wholesale gas prices to record highs in the UK.

The index stood at 166 in March, an increase of 8 per cent on the same time last year.

The natural gas element of the index rose 26 per cent as cold weather, eroding stocks and mechanical faults increased demand.

March was the coldest month in the UK since 1962. By the end of the month, storage levels in the UK’s main gas facility had fallen to record low levels.

Commenting on the index, power trader at Bord Gáis Energy John Heffernan said Irish domestic consumers had been protected from short-term wholesale price fluctuations however, as gas used today would have been bought months ago.

Irish buyers of UK gas have also benefitted from the weakening of sterling against the euro, which has lost 4 per cent of its value since the start of the year.

The high price of gas also pushed up wholesale electricity prices, with the electricity element of the index up 28 per cent. Approximately 75 per cent of the Irish wholesale electricity demand was met by gas or coal powered plants, an increase on the previous month, the report noted.

The coal element of the index was down 4 per cent as European prices fell to the lowest level since last October due to limited demand and an oversupply in the Atlantic basin.

Brent crude price rose by 1 per cent in euro terms, but US dollar terms, the price fell by over $1 as events in Cyprus eroded investor confidence.

The Bord Gáis report said an improvement in supply had influenced oil prices, as Opec boosted its crude production to the highest level in three months in February and horizontal drilling and hydraulic fracturing revives oil production in the US. Tensions in North Korea could lead to an increase in Brent crude prices however, it added.

“Euro zone buyers of non-euro denominated commodities, such as oil and gas, will continue to see their buying power influenced by exchange rate movements,” Mr Heffernan said.

“In March, this buying power was weakened as the market negatively assessed the consequences of Cyprus' bailout on bond and deposit holders in weak banks in at risk countries in the euro zone.”