The cost of buying natural gas on the wholesale energy market plunged during 2014, with average wholesale prices down 27 per cent compared to the previous year, according to a report by energy supplier Vayu.
The company, which supplies gas to more than 20 per cent of Ireland’s industrial and commercial market, attributes the lower wholesale gas prices to both suppressed demand and strong suppliers.
“This has had a significant impact on business energy overheads linked to wholesale gas prices,” the Vayu report for 2014 states.
Vayu senior energy analyst Joanne Daly said that once fixed costs such as regulated fees into account, large industrial and commercial businesses in Ireland would typically have seen reductions in costs of 9-18 per cent for the year as a whole.
As a result of warmer than expected weather conditions, demand for gas in Europe has been consistently lower than average this year. This has contributed to stock-piling across all of Europe's main gas hubs, which were also boosted by increased shipments of liquefied natural gas (LNG) from major suppliers such as Qatar.
In spring of this year, prices were running down by an average of 32 per cent year-on-year and declined further over the summer months, despite the building in of a "risk premium" due to tensions between Russia and Ukraine. By July, prices hit a four-year low and were as much as 42 per cent lower.
Near the end of the year, prices increased due to seasonal factors and higher demand, however in the autumn they were still down 23 per cent year-on-year, while in December, day-ahead prices (contracts for next-day gas delivery) were 22 per cent lower than in the same points in 2013.
“This weakness continues to feed into the lower pricing of gas for the first quarter of 2015 and other contracts due to expire further out next year,” the report concludes.
Weak economic data and a sharp drop in crude oil prices in recent months are also contributing to downward pressure on longer term gas contracts in the wholesale market.
“The outlook for gas supply remains very positive heading into 2015,” Ms Daly said. “If mild weather conditions prevail in the first quarter and there are few unplanned outages, we could enter next summer with record high storage levels. This will have a direct impact on gas prices.”
The geopolitical risk posed by a possible renewal of tensions between Russia and Ukraine remains a feature of the market, however.
Meanwhile, wholesale electricity prices in the Irish market were 14 per cent lower on average in 2014 than they were the previous year. Electricity generated from oil and gas plants is expected to become cheaper to produce in 2014 and could feed through to wholesale electricity prices.
The continuing integration of wind energy onto the grid will also assist in reducing the amount of gas-fired generators used to produce electricity, Vayu said. Electricity from gas-fired generators is typically more expensive than that generated from renewable sources.
Wind energy made “a substantial contribution” towards overall electricity generation in Ireland in 2014, with more than 19,900 gigawatt hours (Gwhs) of wind energy generated since the start of the year. This represented more than 19 per cent of total electricity demand during the period.
“We are continuing to see wind energy play an ever more important role in meeting Ireland’s electricity demand,” Ms Daly said. “This will continue to grow over the coming years in light of an agreement by EU leaders to set a 27 per cent target for energy consumption from renewable sources by 2030.”
