There was a bullish end to 2016 with both gas and electricity prices rising steadily through December, supported by colder weather temperatures and rising oil prices as the OPEC agreement to reduce output gained traction. Gas prices increased by nearly 10% to 1.69 p/kWh and electricity followed with a rise of 3.5% up to 4.93 p/kWh. Oil prices climbed through the month closing at $56.80/bbl up over 50% on the year whilst coal also rose 5% to close the year at $70.25/tonne.
Gas prices were stimulated by on-going concerns over UK gas storage availability. Almost as soon as the Rough Storage returned to normal operating capacity, operators Centrica announced a further round of capacity restrictions and maintenance at the facility. Oddly the UK system was long for the majority of December as ample supplies flowed from alternative sources. Weaker sterling also supported higher prices.
In France EDF announced the return of all nuclear reactors and confidently predicted no power supply problems this winter. Nevertheless, a damaged undersea interconnector cable between the UK and France and near constant concerns over the potential power generation gap this winter supported buoyant electricity prices.
Oil prices reached an 18 month high as the fledging OPEC and Non OPEC agreement to cut oil output started to deliver results. It will however be key to watch how shale oil production in the US responds to the higher global oil prices. The rig count in the US fell steadily as prices fell in 2016 but these can be brought back into action relatively quickly when pricing conditions become more favourable.
It is anticipated that with the projected increases in the plethora of green levies and new market charges to support UK power generation and the gradual move to a lower carbon environment, the actual wholesale energy element of the final delivered customer cost will fall to approximately 40% of the total. Or to put it another way, third party charges where suppliers have no influence at all will account for approximately 60% of consumer’s electricity bills.
So the year starts with uncertainty over the weather, the likely effects of Brexit on the UK economy, and the shape of things to come in the US as President Elect Trump prepares for office.
Article by: Richard Clayton