Industry News

• Energy: To Buy or Not To Buy?

  20 Apr 2009

  Current energy prices are significantly lower than those of 2008. However, the potential for damaging levels of volatility to hit the market is just as great as last year, so consumers continue to be at risk during this uncertain time. With gas and electricity prices falling well below the previous three-year average, now is the time to consider locking in your rates for a longer-term period. The forward view continues to support a strengthening market, so what are some of the factors that could send prices soaring yet again?
  
  

  On the one hand, prices have been depressed because of the recessive state of the economy. However, this has had an effect on investment, and prices are now too low to support new investments in energy production and infrastructure. If the economy begins its process of recovery sooner than expected, the rebound in demand could cause a sharp increase in prices as the lack of suitable infrastructure and production capacity restricts supply.
  
  

  Depleting gas reserves are another cause for concern. As more of the UK’s energy requirements are covered by imports, prices are exposed to pressures from continental neighbours competing for the same gas. This factor is further compounded when one considers that reserves at the North Sea gas field, Rough – where three-quarters of the UK’s reserves are stored – are now 25% lower than this time last year. The coldest winter in 13 years has exhausted its supply and, should pipelines delivering gas to the UK from the Netherlands and Norway fail – as has happened in the past – this could potentially expose consumers to a sudden rise in gas prices at any time.
  
  

  Much has been made of the commissioning of new liquefied natural gas (LNG) import facilities, particularly in west Wales. However, gas coming into LNG terminals will only play a part if UK consumers are prepared to pay the price for the tankers to dock here. With most major economies in south-east Asia – and Japan in particular – almost entirely dependent on LNG imports, global competition in this area is fierce. Furthermore, with most LNG trading on the spot market, prices for gas procured through this source are often subject to extreme levels of volatility.
  
  

  Should your energy contracts be due for renewal in the next few months you may find yourself at a distinct advantage, and able to improve your competitive position by locking in at a lower rate. With a forecast upward pressure on prices, now could be the time to consider a longer-term contract.