Business

How large energy users can cut their bills in 2020

With a deal reached to ensure the flow of Russian natural gas through Ukraine to Europe for the next five years, it is contributing to greater price stability
Stephen Kilcoyne

WITH gas prices decreasing by 40 per cent in 2019 compared to the previous year, marking a ten-year low, what trends are likely to impact on the market in Northern Ireland this year?

Well, if you are a large scale energy user, then this could be the year to cut your bills by adopting the right procurement strategy early.

Last year gas storage supplies exceeded 90 per cent capacity, with wholesale prices dipping dramatically. Exceptionally robust gas storage levels, high deliveries of liquefied natural gas (LNG) into Europe and the increasing role of renewables in the new single electricity market (SEM) have contributed to the significant falls.

As we entered the winter period, the usual uptick in prices occurred, but storage levels across Europe helped to buck this trend and prices have slowly begun to slide once again.

Typically reserves would have depleted in the fourth quarter, but a mild winter to date and a healthy supply picture has kept storage levels full. These higher than expected reserves should keep prices neutral into the early part of 2020 and mitigate major volatility in the short term.

LNG has probably been the most influential factor in the gas fuel mix in 2019. By July cargoes into Europe had exceeded all those received in 2018 and LNG imports into European hubs were up 44 per cent year on year.

During winter months, the UK is dependent on natural gas imports. In the short to medium term, current favourable Asian price spreads could mean that the UK will continue to opt for LNG as a cheaper alternative to imported pipeline gas. US LNG exports took a dominant 31 per cent share of the EU demand for the first time in November, surpassing exports from other leading suppliers such as Qatar and Russia.

This means that the outlook for wholesale energy prices in early 2020 is hugely positive. Our advice to large scale energy users is to utilise their suppliers and their expertise in relation to forward curve planning.

This market benefits those users who are on a flexible rather than fixed rate tariff. Businesses should be considering their opportunities to hedge in line with how comfortable they are with risk. Develop a procurement strategy which coincides with your business practices.

There is never a one size fits all approach for energy supply but there is value to be found in the market in hedging. With Russian and Ukrainian gas companies reaching a deal to ensure the flow of Russian natural gas through Ukraine to Europe for the next five years we are seeing greater stability on contract prices and there is a lot of clear information available on where the market will go this year.

At Naturgy we provide our business customers with regular reports and analysis to keep them up to date on how the all island energy market is operating, as well as any major global influences. A supplier providing market insight, knowledge and support, means even those with time or resource constraints needn’t be left behind.

As we move into the start of 2020, the main price drivers appear to be similar to that of 2019, and this paints an optimistic picture for customers in Northern Ireland.

:: Stephen Kilcoyne is business development manager at Naturgy

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