Wholesale gas prices test three-year low

Wholesale natural gas prices have tumbled to their lowest level in three years this month despite fears the crisis in Ukraine could hit supplies, according to a report to be published today.

Independent supplier Vayu’s latest business energy report shows that, by close of business on Friday, wholesale natural gas prices had fallen 30 per cent since the beginning of the year to 45.8 pence sterling (56.6 cent) per therm in the day-ahead market.

The fall continued during May and prices touched their lowest level since 2011, according to the report. This was despite some volatility resulting from the conflict in Ukraine, which it was feared could affect supplies from Russia, which service a quarter of European demand.

The weakness fed into contracts for June 2014 and agreements due to expire in the next three months. But Joanne Daly, senior analyst at Vayu, says there is very little risk of a rise.

Warm weather "With temperatures expected to remain at or above seasonal normal levels into June, we're seeing prices for gas contracts further out than one month being dragged down by the prospect of reduced demand and lower requirements to build up inventories," she said.

Ms Daly added that while markets remain sensitive to Ukraine and continue to build a risk premium into prices, there has been little upward pressure. "In fact, concerns over Russian gas supplies to Europe appear to have further hastened the build-up of inventories in Europe," she said. "Storage levels within Ukraine, however, are a cause for concern as current injection rates are considered too low should any disruption to European gas supply materialise."

According to the report, the slump is down to lower-than-average demand over the last six months due to warmer weather and shipments of liquid natural gas from suppliers such as Qatar. This increased storage levels in the UK, which is the Republic's major source of supply.