Decrease in Demand for Wholesale Energy – But Is Everything About to Change?

Within the past month overall demand on gas has increased by an average of 4% every week. Although this only represents a 1.6% national climb, regionally the rise has averaged a 7.6% increase in the past month. However, statistics show that the winter-to-date demand is down 22.8% on the national system but has risen by 13.9% regionally. This contrast in demand for energy reflects the current spread of demand across the UK, and there has been a decrease in energy demand for power generation but an increase in use of gas within households, thanks to a lacklustre summer and an early start to what is predicted to be a cold winter.

The winter 2011 figures for gas prices were higher than the relative prices this year. However, the high gas prices experienced last year are now beginning to feed through for gas consumption predictions. Suppliers’ cost-based national hedging strategies are reflected in their higher prices. However, wholesale energy price predictions for summer 13 are now 2% above last month’s level of £48.6/Mwh, and overall prices for summer 13 power is 6.6% lower than at the same time last year.

Seasonal gas prices are following a similar trend, with winter gas contracts up by 1.2% and summer 13 contracts up 3.1% to 63.1p/th. That pushes summer 13’s gas contract price up 3.8% above last month’s level, but down 0.9% on last year’s overall figure of 63.7p/th.

Rise of the Big Six

This after-effect of last year’s high prices, along with weather forecasts for winter 2012, predicts a rise in gas and electricity contracts of 13% based on last year’s prices. This will be reflected in the end-user tariffs increasing accordingly, and announcements have already been made by the major retail suppliers of increases in both gas and electricity prices. British Gas has announced the lowest increase, raising their electricity tariffs by 6% in from November. SSE followed suit and increased retail tariffs by 9% this month. RWE Npower have also taken advantage of predictions and increased gas prices by 8.8% and electricity by 9.1%. It is expected that the rest of the Big Six energy companies will follow predictions and increase energy contract prices within the next month. One exception, however, is E.ON energy, which has vowed to hold their prices throughout the remainder of 2012.

Overall demand has been relatively static, although the onset of the winter months has seen overall gas demand go up by 4% week on week, and power demand climb by 0.9%. Peak demand hit 47.4GW, but in comparison to the same period last year, electricity demand has actually decreased by 1.5%. Demand for gas year-on-year has also gone down, despite the weekly blip which may have been triggered by a cold snap. Winter to date demand for gas was down 22.8% on the national system, but up 13.9% on regional systems. This indicates household consumption has gone up, whilst overall demand for power generation has declined. How these figures are affected by the increase in tariffs will become clearer next month, as end-users weigh up the cost of both electricity and gas and whether this winter is considerably colder than 2011.

One additional piece of news is the announcement that Shell UK has begun to develop a Fram oil and gas field within the central North Sea, after receiving consent from the government. This development will increase the UK’s daily oil and gas production by 2%. Although relatively small in comparison to the UK’s gas and oil consumption, this 2% increase may have positive effects on future gas prices and provide a buffer against cost-based national hedging strategies.

Source by Graham N Paul