Wholesale gas prices hit four-year low

Wholesale gas prices hit a four-year low this month, according to a new energy report by the utility Vayu. But it warned that tensions with Russia over the current unrest in Ukraine could lead to future supply problems and price volatility.

Wholesale gas prices last Friday, as reported by Vayu, were 39 per cent down since the beginning of the year and 38 per cent lower than at the same point last year. Vayu said the drop in prices was driven by low demand because of the warm summer, and unusually high storage inventories.

Ireland’s gas storage facilities are currently 95 per cent full, the company said, as opposed to 67 per cent full this time last year.

However, Joanne Daly, senior energy analyst at Vayu, said: "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."

She said that Russian gas fulfils about one third of Europe’s needs, and that almost half of this is piped from Russia via pipelines in Ukraine.

Political risk premium

“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,” the report said.

Bord Gáis Networks recently said that it plans to invest further in gas storage facilities for Ireland. The country currently holds about 45 days worth of supply, which would be used in the event of a cut-off by Russia.

The report also warned that gas supplies could become more expensive if scheduled delays in the delivery of Norwegian gas to the UK materialise in August. “However, while North Sea production changes in the past have had a strong market impact, any price increases this time around are likely to be limited,” said Ms Daly.

Meanwhile, Centrica, which recently bought the retail business of Bord Gáis including its residential and corporate customer books, is coming under pressure to pass on a portion of the dips in wholesale gas prices to its customers in the UK. Centrica, which owns the British Gas brand, says that its profit per household is falling, according to its financial results.

But reports over the weekend suggested that the UK energy regulator would release a report this week confirming that the biggest energy companies are making more money from their customers than ever before.

The regulator’s report is likely to be used by customer advocates to demand that utilities like Centrica cut prices for consumers. The industry in the UK, however, has previously said that the regulator’s calculations are inaccurate.