More fun from the global complex that is energy this week as good news hit the UK energy market with energy prices falling thanks to stilted demand in Asia.
The downturn in Asian gas requirements and plunging oil prices means that Liquefied Natural Gas (LNG) importers have had to find new buyers and the UK was ripe for the pickings. As a result UK LNG imports have therefore tripled since the start of the year.
The beauty of a globalised energy market, and an eminently transportable one as LNG is, is that product can be shipped anywhere to meet demand and price points.
Great news in a period of abundance, less so when another continent places a margin call and takes supply away as readily as it came.
For now though the UK is benefitting in supply gluts and their resulting weakened prices.
Indeed this additional LNG available at the margin, combined with weaker winter demand, has been a major factor in the reduction of British wholesale prices over the winter.
ICIS Head of Gas, Ben Wetherall explains:
“This means that, for the likes of Centrica (British Gas Business) and E.ON, both of which have flexible supply contracts with Qatar, the UK could prove a more attractive LNG import option through 2015 and 2016, or at least a more viable market of last resort than has been the case in previous years.”
Market specialists at ICIS (not to be confused with the less popular ISIS) state that wholesale energy prices have hit their lowest cost since 2011 with prices being 30% lower than they were this time last year.
Wholesale electricity prices have followed suit with a 10% reduction on last year’s prices.
But don’t get beside yourself too quickly. While wholesale costs have dropped, they only account for 46% of the overall energy costs passed onto consumers with a hefty 23% going on government taxes and levies.
So while we can expect a decrease in core energy costs in the coming months, the savings won’t be monumental dampened by new green levies whilst the market will be sure to level out again once demand in Asia is back to normal and LNG finds a new flag of convenience to sail under.