ENERGY NEWSLETTER. Market Update CONTENTS ISSUE 32, MARCH 2017

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1 ENERGY NEWSLETTER ISSUE 32, MARCH Market Update Since the market lows seen in the first half of 2016, prices had been on a clear upwards trend. Drops in August and November 2016 were not able to counter this underlying movement. However, from the end of January the market changed direction, initially the decline appeared to move in line with previous market fluctuations, but during March the downward move broke through the long term trend line, indicating that the market direction may have changed. CONTENTS 1 Market Update 4 Water Competition 5 Staff Profile This overall direction has accelerated its downward move, however at the time of writing it had not dropped below the previous lows seen in Dec As such these movements could easily be temporary and soon to be replaced by a return to climbing rates. One index often used as an indicator of market direction is the international oil price. Oil prices had experienced an unusually long (at least in recent years) period of calm, with little movement since the OPEC agreement at the end of November. At least that was the case until the 8th March. From this point oil prices moved sharply down, dropping from $56/barrel on the 7th March to $50/barrel on the 14th March. 03-Jan 01-Feb 01-Mar 13-Mar High Low Brent Oil $/BBL UK Gas p/th Day Ahead Month Ahead (Apr 17) S W S W UK Power Day Ahead Baseload Month Ahead (Apr 17) /MW S W S W

2 US Oil Stocks Compared to Brent Crude Over the last three months oil prices have remained steady at around $55/barrel whilst the market watched the ongoing tug of war between OPEC cuts and US shale growth. On one side, OPEC cut production from the 1st Jan in order to reduce the record high levels of oil in international storage, thereby increasing the oil price. OPEC implemented the cuts in impressive style, with Saudi Arabia cutting production by 750,000 barrels per day, well above its 500,000 barrel target. However, OPEC s cuts were undermined by the unexpected resilience of US shale. Many analysts had expected that shale operators would be unable to operate profitably at prices lower than $60/barrel, but efficiency savings forced upon the industry by two years of low prices paid dividends. US producers were able to sharply increase output as prices rose on the news of OPEC cuts. Since January the market has balanced, with reduced volume from OPEC being compensated by higher production in the USA. However, news last week of large injections into US oil storage, with stocks hitting all time highs caused the market to jump sharply down. Given the underlying importance of oil to all commodity prices, particularly gas and power this move, if sustained, could indicate a decline in overall energy costs. In the UK gas storage remains the key concern over the next winter. Rough, the UK s only long range storage site, has been suffering from maintenance issues for a number of years. Recently, Centrica (the site s operator) announced that it would be unable to inject any gas into the site until July at the earliest. This announcement has two implications for the gas market. Gas prices over the last 12 months 2

3 Power prices over the last 12 months Firstly, Rough normally injects from April through to September. No injections through April, May and June will leave the gas system oversupplied as North Sea production cannot reduce output to counter the lower demand. This will reduce gas prices over this period. Secondly, and crucially, removing three months of the summer injection period will make it impossible for the site to refill before winter starts. Therefore, the UK will again go into a winter with much less gas available than in a normal year. In the event of a cold winter, the UK will be forced to rely on increased LNG and European imports, both of which are more expensive and open to international competition, which may limit availability. On a more positive note, LNG imports into the UK have risen sharply since the beginning of March and the international system is increasingly oversupplied. This will allow the UK to pull in additional gas via LNG if the system demands it, although at a higher cost. In the power sector reduced generation capacity remains the key concern. Spare capacity continues at well below comfortable levels and the UK system experienced periods of significant strain over the winter. Margins have improved compared to the same period last year, with increased nuclear availability and new gas fired generation assisting over recent weeks. Focus will remain on the unfolding weather picture as we move into next winter. Calm and cold weather will again have the potential to overstress the system, leading to volatile market conditions. Internationally, the key impact continues to be the poor performance of the Pound due to the EU Referendum. The Pound has been by far the worst performing of the major currencies in 2016, dropping to 30 year lows against the Doller. In fact the fall of the Pound has been so extreme that the only nations with even worse currency performance in 2016 were Venezuela, Nigeria and Egypt. This weakness increases the import costs of gas, coal, uranium and electricity, increasing energy costs overall. In addition, it incentivises the export of gas from the UK to the near continent, potentially placing the UK system under increased pressure. Overall, the recent change in market direction, underpinned by a similar move in the oil price indicates that we may be seeing a shift to more bearish conditions. However, concern over gas storage and electricity generation margins remain, and will be of key concern over the upcoming winter. 3

4 Water Competition The time is now! The water market opens to full competition in April and this will allow owners of non-domestic properties to change their water and wastewater supplier. In recent months there have been many events happening with both Southern and Thames water exiting the retail market. In August we highlighted that we would be providing a water procurement framework of our own and we are pleased to announce that the framework will be going live in the next month. The framework consists of multiple suppliers, accessed via a mini-tender, who will compete to supply your portfolio of properties. We can run your mini-tender either as an individual portfolio or amalgamated with others to gain aggregated benefits. Overall our aim is to deliver the following benefits with our framework: Savings on price. Improved billing and customer services. Support for water saving services. OJEU compliance. Now is the time to collect information on your water portfolio. To access our Framework data will be required and you will need to make decisions around which sites are included. For example, if you are a council with schools, will you look to include schools as part of your tendered portfolio? We are already seeing suppliers improving their services and preparing to compete for your custom. However, customers with the most accurate data are likely to attract the most competitive bids, so we advise you to focus on collating water data as soon as possible. The tables below list the essential and desirable elements which suppliers will be looking for in order to give the best bid. ESSENTIALS DESIRABLES Site name and address Supplier name Supplier reference number Meter serial number (MSN) Rateable value or meter Water meter size Annual consumption % return to sewer Trade effluent (swimming pool) If you would like to speak to Matt, our Water Analyst regarding Water Competition opening and how LASER could help your organisation, please contact matt.hull@laserenergy.org.uk or

5 Staff Profile PAST EMPLOYMENT Lloyds TSB, Schneider Trading Associates, Comet ABOUT ME I have worked for Laser for 8 years. I started in the Customer Relationships Teams and then moved into Procurement in FULL NAME Gurj Dhillon JOB TITLE Procurement Analyst INTERESTS/HOBBIES I love sport whether it is participating or attending. I am a season ticket holder at Liverpool FC, I have travelled around Europe to watch them play. I ve travelled around India for the Cricket World Cup in I am also keen tennis player. During my free time I volunteer at my local Sikh Temple. GUILTY PLEASURE I occasionally like a flutter and I am completely fascinated by the recent change in regime in the US. INTERESTING FACT I have a degree in Astrophysics. I went to the 2014 World Cup final in Brazil, I attended over 10 matches including the opening game, both semi-finals a trip of a lifetime. Would you benefit from Direct Debit? Many of our customers consider Direct Debit a more efficient way of paying invoices; quicker than processing BACs payments and cheaper than posting cheques. To discuss this further, please contact your Customer Relationship Manager Are you on Twitter or LinkedIn? If so, don t forget to follow us to keep updated on our latest company news. You can find us LASER Energy Buying Group Please be assured that any queried invoices can be placed on hold up to 14 days from date of invoice and payment will not be taken. Energy Procurement Invoice Validation & Billing Services Energy Management & Bureau Services Customer Relationship Management COMMERCIAL SERVICES 1 Abbey Wood Road Kings Hill, West Malling Kent ME19 4YT Phone: info@laserenergy.org.uk Website: LASER is a trading style of Commercial Services Kent Ltd - a company wholly owned by Kent County Council 5