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March 21 – Gas Market Update

Gas Price Update

Deciding when to lock your energy can be challenging for business, knowing the perfect time to buy is almost impossible. But what is possible is market analytics and monitoring fundamentals, the key to identifying favourable prices for your budget. As we come to the end of first quarter of another surreal year let us look back on how the wider fuel energy market coupled with market fundamentals influenced gas and power prices in Ireland and what to expect as we head towards the Summer. 

Bullish related fuels, cold weather and a lack of LNG lifted gas prices in the opening weeks of 2021. Covid stay at home measures saw LDZ heating demand ramp up above a three-year average, this created a short squeeze peaking in mid-January, sending NBP prices into a territory not seen since 2018. Fortunately, a downturn soon followed, Asian demand began to fall back and some elements that created the bullish storm were no long a concern. February’s Day-Ahead price averaged at 46.07p/th down 22% from January, thanks to milder weather conditions and a flurry of Qatari and U.S LNG cargoes. Nevertheless, when you compare energy prices in 2021, they are double where they were during the same period last year.

The difference is being driven by the drain in storage and the record low level it is currently at. Storage will play a primary theme as we progress into the summer months and storage concerns are reflected in current market prices. Other important bullish drivers to make a note of are heavy maintenance at UKCS this summer along with an increase in gas consumption on the back of lockdown easing across Europe compared to last summer. The prospect of record high LNG arrivals can counteract these bullish indicators. Record high LNG can also transfer into record high storage injections, which would paint an overall bearish outlook for Summer-21.

gas graph March 21

gas image graph March 21

gas graph

Wider Energy Market

Competing relating fuels are also underpinning gas prices, it is important to analyse these markets and understand the effect these commodities play on your gas and power bills.

At the end of Q1-20 EU Carbon prices had averaged at €22.81/tonne compare this to €37.64/tonne for Q1-21. The question we need to ask ourselves is why the commodity is so bullish and is it set to continue? European companies that emit more CO2 than their carbon allowances need to buy extra allowances in the market, while those who switch to clean energy and use less are free to sell their allowances. So, the European Union are set to tighten supplies over time to reach their 2030 carbon emission goals, as a result allowances will rise in price. Currently, the European Union is driving for a low carbon economy to help combat climate change, as a result it is difficult to see a reason why prices would fall back significantly in the future.

Unlike the ETS Carbon market, oil has experiences larger market swings. Spot prices surged to $69.63 on March 11th, their highest close since March 2018. Support was found in ongoing improvements in oil market fundamentals and the anticipation that demand will recover following widespread Covid 19 vaccine programmes across the globe.

However, oil prices began to shed value mid-March losing 12% as concerns surrounding global demand forecasts and a strong dollar filtered into the market. US Energy Information Administration predicted a declining crude oil price and a more balanced oil market reflect global oil supply surpassing oil demand during the second half of 2021. Nevertheless, the forecast depends heavily on future production decisions by OPEC+ and the pace of oil demand growth.

Market Correlation between Oil & Carbon Markets