Energy prices – 2018/19 Outlook

A DB guide to locking in your annual business rates

At DB we continually monitor energy markets to have the latest information at our fingertips.  Our business energy customers benefit from our expertise and up to the minute knowledge, which is invaluable when it comes to supplier negotiations and contract renewals.

Fluctuations happen in the market constantly and are priced into Business Energy contracts daily so by having a TPI who monitors and forecasts the market every day is essential to make savings. We have identified over 80% of the recent dramatic drops for our customers, saving them thousands of pounds.

What happened to prices over the last year?

The cost of energy rose steadily from October 2016 and into 2017, with a slight dip during the warmer months before it continued to rise again.  This could be attributed to the lessening of energy demand during the warmer months, but the true picture is much more complex.

  • The influence of Saudi Arabia and Russia: underneath seasonal fluctuations were the global Brent crude oil prices. The Organisation of the Petroleum Exporting Countries (OPEC), led by Saudi Arabia and including Russia, the largest non-member (nOPEC), were limiting production to reduce global surplus and increase price.
  • Cracks in the pipeline: in December 2017, a hairline crack formed in the Forties Pipeline System (FPS) in the North Sea, which accounts for around 30% of the UK’s daily oil needs.
  • A winter of extremes: the extreme weather seen in the UK in early 2018 saw a huge rise in UK gas prices.  On the flip side, rising temperatures across the world affected supply and delivery to Europe.  There was a lack of high winds during 2017, meaning wind generated power saw a downturn, cancelling out the increase in solar power generation.
  • Additional influences: other influencing factors include the price of carbon, which has increased by 50% since April 2017, and the effect of US sanctions on Iran which are indirectly affecting production and exports.

What can we expect in the coming year?

  • Oil: Oil price is influenced by political and economic factors. The US and China trade war, the US sanctions on Iran and OPEC & nOPEC’s production cut agreement will all impact the price of oil in the coming year.
  • Liquefield Natural Gas: Liquefield Natural Gas (LNG) is set to flood the market in 2019; American LNG exports are expected to nearly triple over the next 12 months with global demand rocketing.  As a result, the International Maritime Organisation (IMO) will undertake negotiations with the shipping industry about emission reductions and this could lead to more taxes, slower vessels or more expensive electric tankers.
  • Climate Change: weather extremes are now anticipated throughout the year, so we can expect more weather influenced price changes in 2019.
  • Power Stations: many UK and European power stations are set to close due to their age, safety concerns or carbon emission output.
  • Interconnectors: there are many projects underway to link up parts of Europe with interconnectors to allow the import & export of power, with 11 set to be in place by the end of 2019.
  • Additional charges: the UK Government may need to introduce an additional Non-Commodity Cost to replace the Feed in Tariffs (FiTs) scheme that was recently removed.

What does this mean for 2019 prices?

Many suppliers have already set their April 2019, 12-month contracts.  Longer dated prices are currently valued lower than prices nearer to now, so the longer the duration of a contract the lower the present overall unit rate.  While these contracts will tend to secure a lower rate and reduce risk, waiting and monitoring the market before locking in is likely to result in a better price.

We can help you decide what the best option for your business is, assist with contract negotiations and ensure you get the best possible lock in price available.  Contact us on 0330 058 3405 or drop us an email at info@dbgroupeurope.com.