The continuation of mild, windy weather meaning lower gas prices for heating demand and increased renewable generation has reduced pressure on European gas reserves, which were at 87% full on 31 December 2023 versus a five-year average of 74%, according to Nationwide Energy Consultants operations director Gerry O’Hara.
O’Hara, who was a guest on the Lock In Podcast, which went live today (Monday 8 January) sends an energy update on a fortnightly basis to breweries and pubco partners.
He added continuing strong supplies of both liquefied natural gas (LNG) and Norwegian gas at the start of 2024 is adding further downward pressure on commodity costs.
O’Hara said: “A very encouraging trend in the sample of customer contact rates shows that over the past four weeks, both commodity and contract rates have reduced by 10% for electricity and gas by a very significant 18%.
“Regarding future price movements of both commodity and contract rates, the key question is how much further they can fall? In 2023, industry experts predicted commodity costs would stick at around double the historic rates for the next few years – if that’s the case then we’re almost there.
“If commodity costs have fallen as far as is likely, hopefully some further reductions in contract offers will be evident as suppliers secure energy on lower prices they may have hedged previously. It also the case that supplier margins are larger than they were pre-pandemic, some of this must be to account for bad debt.”
Limited scope for further falls
He continued: “As prices reduce, hopefully so will debt levels and supplier margins in due course. Overall, it seems likely prices have come down substantially and there remains limited scope for further reductions.
“Alternatively, we are only a ‘beast from the east’ weather event or an escalation in the Middle East or some other significant reduction in supplies to push prices higher.”
O’Hara advised if any operators have a contract renewal within the next four months, new contracts should be agreed as a priority with market rates being favourable currently.