gas prices

How do short term warnings of gas supply shortages, and a 50 per cent spike in same day delivery costs, sit with the general acceptance across the energy sector and government that gas will – and should be – the next big source of supply for power generation ? Read more

Oil refinery. Getty Images

The energy market is moving on two very different tracks. Oil prices are stubbornly high and gas prices are low, especially in the US, and look set to fall further across the world. The question is when, if ever, will these two tracks meet?

Let’s start with why the oil price at $114 a barrel for Brent remains so high. There is no physical shortage and demand growth worldwide is minimal. The answer lies in fear of what might happen next. The threat of an open conflict between Israel and Iran may have receded but there are enough uncertainties in the market to keep people nervous. Libya is out of control because of the limited international support for the new government following last year’s military intervention by France and Britain. There is continued nervousness about events in Algeria after the terrorist attack last month and concern about the negative effect on investment of the renewed outbreaks of violence in Iraq. Read more

Shares in EON have risen by 10 per cent over the last two weeks and have led a limited rally among Germany’s hard pressed utilities.  The deal reached after years of negotiation with Gazprom sets a precedent and puts a big question mark over the pricing structures and energy mix across the whole European electricity sector.

The scale of the price reduction has not been announced but was sufficient for EON to add over €1.5bn to their net profit forecast for this year.  The cut in prices is a reflection of reality.  European gas demand has been falling and supplies are plentiful.  In addition to continuing production from the North Sea , supplies from Russia, central Asia, north Africa, west Africa, Qatar and Trinidad are all competing to supply European consumers.

That is before counting any exports of gas from the US ( which are due to start in 2016 ) or any production from Europe’s extensive shale gas resources.

The reality of falling prices is a global phenomenon.   Read more