BuyEnergyOnline Monthly Price Watch Report - September 2011 |
Energy prices eased during September. Gas prices fell 6.2% to 2.31p/kWh and electricity prices fell 3.6% to 5.92p/kWh. Oil prices fell 10.2% to $103/barrel, coal prices fell 4.5% to $122/tonne and carbon permits fell 17.2% to €10.65/tonne.
Forward Price Graph
Key Price Drivers and Risks
Prices eased during September as Eurozone debt problems and global recession risks increased and the outlook for weather over winter improved.
European Sovereign Debt Crisis
Energy and financial markets are experiencing heightened volatility but remain firm in the face of
euro sovereign debt risks. Stakeholders in Eurozone are in intensive planning but still don't know
what to do as Greece teeters on the brink and Greek middle class stare into the abyss. The major
concern is whether sovereign risk will continue to increase in Italy and Spain and whether the risks
will take down the European banking system. Also, economists have started assessing the economic
hit of a Eurozone break up, with estimates including 20-30% GDP loss and global depression. French
GDP for Q2-11 was released this week at 0%.
Focus on US Monetary Policy with a Bernanke Twist
Global financial and energy markets focused on the US Fed meeting held over two days last week.
Prices tumbled following Bernanke’s pessimistic outlook but then shrugged off the new monetary
policy initiative dubbed the Bernanke Twist. High market volatility is driven by poor US economic
data releases and monetary policy developments.
China Property Market
Analysts started focusing on Chinese property market risks this week following data releases
showing prices plateauing and easing in some cases. The concern is that over half of Chinese GDP is
property development activity which would be impacted by a property market correction.
Winter weather uncertainty
Press reports of snow at end of October are not backed by meteorological services. In fact current
forecasts for Q4-11 are close to average. Weather conditions during this quarter are large price risk
driver as depletion of gas reserves create supply dangers for the much colder January and February
months. Experience during a winter period also feed through to expectations for following winter
periods.
Tight oil supplies
Oil prices remained volatile ranging between $102 and $116 during the month. The lower range has
been tested a few times now and has held firm due to tight oil supplies including lost Libyan supplies
and several outages in non-OPEC countries, all of which is expected to return over next 12 -18
months.
New energy infrastructures
Germany and UK energy suppliers are increasing their profit margins to source funds of £100s of
billions over the next decade to modernise electricity infrastructure with cleaner technologies which
are considerably more expensive than traditional fossil fuels. If funds are unable to be sourced the
suppliers will need to invest in gas fired generators which are cheaper and also cleaner than coal.
Views
We believe energy prices will ease from current high levels as the global economy continues struggling to avoid a double-dip recession and as new gas supplies come to market. We also think that upward price pressures from fund raisings required to modernise the electricity infrastructure will ease due to lack of funds resulting in an increase mix of cheaper gas-fired generation.
Recommendations
We recommend waiting as long as possible to lock away fixed price contracts or taking a flexible purchase contract to access spot prices. Flexible contracts are now available for medium sized energy buyers willing to take on some risk to reduce their costs.
Our auction based tendering process can secure the best fixed prices through liquidity, transparency and speed. Our flexible purchasing contract utilises our fixed price auction to determine a benchmark price, and allows buyers to buy cheaper energy by taking on and managing some risk and to reduce annual price volatility.
Note that these views and recommendations are offered for your consideration, but may be wrong as the market is highly uncertain. The energy markets hold additional risks which are unknown until they arise.
Derek Myers
Director
BuyEnergyOnline
0208 849 8977
