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Gas Price – The Only Way is Up!

gas supplyOnly days after we were hearing reports of its fall to new lows, the gas price has started to rebound in strong style.

Only last week, the price of gas for the coming Winter (2014/15) was being traded at its lowest level ever. Gas, like electricity, can be traded many years in advance of its actual delivery and Winter 14/15 has been marketed since 2011 but never before at the sub 55p/therm level, the equivalent of around 1.877p/kWh. For a winter price (higher demand, cold snaps, unpredictable behaviour) that was very low indeed.

Alex Froley of Platts, the price-reporting agency, told Utility Week:

“Monday’s Winter ’14 gas price of 55p/therm is the lowest since the contract started active trading, pushed down by weak prompt prices and high storage levels”

“UK gas storage is now 82% full, whereas last year it was only 59% full at this point of the year, and took until the end of October to fill up”

Indeed it was that paucity of storage reserves and the long, cold winter that led to the high prices of last year.

But it wasn’t only long term prices that had collapsed with ‘prompt gas’, for next day delivery, having fallen to 35.30 p/therm. That is against a 2013 average of nearly double at 68 p/therm. With Gas prompt down 13% on the month and 35% on the year, Electricity prompt prices were pulled down by 8% month on month and 23% over the year.

But if a week is a long time in politics it’s even longer in the energy markets.

Gas for this winter is now 1p/therm more than at Friday’s market close, with suppliers pulling prices and reassessing the market before re-entering.

The underlying cause is a shortage in the system with around 20m cubic meters less of gas available than demand requires due to reduced flows from the gas terminals, a reduction in the interconnector volumes flowing in from central Europe and increased demand from power stations to generate electricity.

In addition the usual geopolitical overlay affecting the world’s energy producing nations, this time the threat of “irreversible consequences” in Ukraine, is reducing confidence and driving up near and long-term prices.

Of course things can, and do, change quickly but the fundamentals suggest that the bottom of the gas market has been seen and gone.

With Contract renewal season in full swing and anything up to a January 2015 contract available for lock in, now is the time to take the opportunity of grabbing the last of the low prices before the market reverts to the norm.

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