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Wholesale Energy Markets Reflect the World's Financial Worries

July 09, 2012 | Comments: 0 | Views: 221

In a direct reflection of the financial market's currently unsteady nature, the wholesale energy markets tumbled to a four-month low at the end of May. The bearish market was thanks to the continuing instability in the Eurozone, as well as concern that the conflict in Syria could escalate. Syria is becoming more of a problem for the wholesale energy markets, particularly as the violently unstable country is a key player in the energy supply of industrial giants China and Russia. As Western Europe continues to try and find alternative sources of energy supply rather than relying so heavily on the Eastern Bloc pipelines, this current situation could send ripples throughout the industry for weeks, if not months - long after the conflict has been resolved.

Gas and power prices are now close to their yearly low figures seen five months ago, and annual October prices have also fallen an unprecedented 10% from their 2012 peaks to record lows. Seasonal spark and dark spreads fell 4% over the week on the back of falling power prices, and dark spreads are at a £19/MWh premium to spark spreads.

A shaky end to Q2

While it's been a shaky end to Q2 for wholesale energy markets due to international concerns, the lacklustre early summer weather has also resulted in a drop in demand from retail and domestic customers. This rounds off a decidedly unhappy Q1/2 for the energy industry, with gas demand on the national system decreasing by 7.3% and the regional system slipping back 6.3% week-on-week. Demand from 1st April to date was down 8.3% on the national system, but there was a considerable rise on the regional system of 46.8%, compared to Winter 2010/11. This sends out a slightly conflicted message - gas demand for power generation is down sharply year-on-year, but consumption by domestic and business customers is on the rise. This could lead to a rapid increase in prices in the second half of 2012, after gas suppliers cut their prices last year.

UK gas storage is 59% full as injections continue to keep pace with withdrawals, so there's no worry of the gas running out any time soon, even taking into consideration the instability in the Middle East and its knock-on effect in China and Russia. With China reporting the first signs of an economic slow-down, wholesale suppliers could see a glut of availability in the second half of 2012 as the Far East reins back on energy demand.

On the international scene, energy prices dropped significantly at the end of May due to market concerns with the Eurozone. Month-ahead Brent crude oil fell 4% to a five-month low of $107/bl. Coal prices fell 5% to a 19-month low of $100/t. The US is also reporting that the jobs market is flat at best, which again could lead to a downturn in demand for wholesale suppliers as costs are cut to keep the growth momentum on track.

All in all it's been a very unsteady six months for wholesale energy suppliers, and unless the Eurozone situation is resolved quickly and some kind of workable solution is implemented in Syria, the second half of 2012 could turn into a scary rollercoaster ride for energy prices.

Graham Paul - Services Delivery Director (EDW Technology). EDW have a long history developing, implementing and supporting best-of-breed software solutions. Since 2000, their electricity pricing system - part of ERS (Energy Retail Suite) has enabled energy retailers with powerful and highly competitive IT systems, transforming customer experience, improving business efficiency, reducing costs and boosting profits.

Source: EzineArticles
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