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The cost of energy

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There has been some discussion on DBs thread of oil and energy prices and I thought it might be an idea to start a dedicated thread, especially as we now have a couple of members who work in the oil industry.

I'll kick it off with a thought I had earlier. Gas prices have risen due to the 'wind drought' over the summer. With increasing generation from wind, the impact of lack of wind on pricing of fossil fuels may begin to have a bigger impact.

So where I used to watch oil prices and have recently started to track gas prices, maybe I should now start watching the weather forecasts.

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Interesting angle. I’ve been wondering how much gas comes to us from Russia and how geopolitics might affect that side of things.

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This is why Germany is pressing on with Nordstream II, ignoring the American drivelling.

The Germans understand how important gas will be to their future and the Russians are the most reliable supplier and offer the best price.

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Gas futures continue to rise, I was expecting them to have levelled off or started to drop by now. On DBs thread there was a mention of 18% increases in energy prices in a couple of months.

Any thoughts on what is pushing up the gas prices? I find it hard to believe that it's all down to the wind drought, surely there must be another factor?

 

Gas Futures  2.jpg

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2 hours ago, Option5 said:

Lack of capacity in infrastructure, pipelines full, LNG plants full. Getting it out of the ground is easy, transporting it no so easy.

If a supply bottle neck is the cause then surely it must be driven by demand, or a predicted increase in demand?

Prices were fairly stable for around 18 months within a range and then suddenly shooting up from around May this year.

 

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28 minutes ago, null; said:

If a supply bottle neck is the cause then surely it must be driven by demand, or a predicted increase in demand?

Prices were fairly stable for around 18 months within a range and then suddenly shooting up from around May this year.

 

The growth in demand has been steady however due to the fall in prices the capex projects planned to keep up with demand, replacement/repair/upgrade of old facilities and the building of new facilites were all canned. The restrictions in supply were inevitable, next will come the lack of production.

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10 minutes ago, Option5 said:

The growth in demand has been steady however due to the fall in prices the capex projects planned to keep up with demand, replacement/repair/upgrade of old facilities and the building of new facilites were all canned. The restrictions in supply were inevitable, next will come the lack of production.

Thanks, it all makes sense now.

Do you think the price rise will trigger another round of investment? If production is set to fall, then I wouldn't want to be investing in infrastructure.

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9 minutes ago, null; said:

Thanks, it all makes sense now.

Do you think the price rise will trigger another round of investment? If production is set to fall, then I wouldn't want to be investing in infrastructure.

Infrastructure investment will take place (it's already started) but it's probably too late now to avoid some supply issues. In addition some infrastructure that was planned for upgrades is now too far gone to make the investment viable. If demand falls in line with avilability we'll be OK if it doesn't there may well be issues.

The US will probably be OK in the short term with fracking but very little of it is profitable due to huge ongoing development costs. So unless the government play the "security of supply" card many of the companies will go under.

Edited by Option5

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After 10 days of consecutive increases in the gas futures, its dropped slightly today.

A blip in the trend or the top? I think the top (for now) and expect to see it bounce around in the new range for the next six months. Nothing more than me gazing into my crystal ball so lets see what happens.

I'm hearing lots of reports elsewhere of big hikes in energy bills for both household consumers and business. Also hints that fuel duty freezes might be starting to thaw.

Inflation ahead?

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17 minutes ago, null; said:

After 10 days of consecutive increases in the gas futures, its dropped slightly today.

A blip in the trend or the top? I think the top (for now) and expect to see it bounce around in the new range for the next six months. Nothing more than me gazing into my crystal ball so lets see what happens.

I'm hearing lots of reports elsewhere of big hikes in energy bills for both household consumers and business. Also hints that fuel duty freezes might be starting to thaw.

Inflation ahead?

In energy costs over the next 6 months, certainly.

This is the sort of thing that might tip plenty zombie companies over the edge. I thought everything was going to hold together in the wider economy until mid 2019, but now I'm not so sure, this is the sort of news that might force the BOE's hand on interest rates.

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12 hours ago, Bricks & Mortar said:

Just arranged my electricity supply contract, (business supply - low user).  Best I could do was 21% more expensive than our present deal.  Signed up for 4 years.

Quoting myself seems weird.  It's just that I've something to add.

They offered 17.62p/unit for a 1 year deal.  16.96 for 2 years.  16.94 for 3 years and 16.99 for 4 years.  It would seem the suppliers think this is a short term spike.

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28 minutes ago, Bricks & Mortar said:

Quoting myself seems weird.  It's just that I've something to add.

They offered 17.62p/unit for a 1 year deal.  16.96 for 2 years.  16.94 for 3 years and 16.99 for 4 years.  It would seem the suppliers think this is a short term spike.

Renewables?

onshore wind $40 per MWH

solar $50 per MWH (and getting cheaper as technology and production advances)

offshore wind $60 per MWH

Gas $60 per MWH

Coal $102 per MWH

Nuclear $148 per MWH

Good job we are not building any new nuclear power stations in the UK.. otherwise our electrical prices would go through the roof!

 

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9 hours ago, macca said:

Renewables?

onshore wind $40 per MWH

solar $50 per MWH (and getting cheaper as technology and production advances)

offshore wind $60 per MWH

Gas $60 per MWH

Coal $102 per MWH

Nuclear $148 per MWH

Good job we are not building any new nuclear power stations in the UK.. otherwise our electrical prices would go through the roof!

 

so what's your preferred source of base load power ?

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13 hours ago, macca said:

Renewables?

onshore wind $40 per MWH

solar $50 per MWH (and getting cheaper as technology and production advances)

offshore wind $60 per MWH

Gas $60 per MWH

Coal $102 per MWH

Nuclear $148 per MWH

Good job we are not building any new nuclear power stations in the UK.. otherwise our electrical prices would go through the roof!

 

I'm astounded by that price for nuclear.  I genuinely thought it was one of the cheapest with the only thing holding it back being safety concerns.

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21 minutes ago, Frank Hovis said:

I'm astounded by that price for nuclear.  I genuinely thought it was one of the cheapest with the only thing holding it back being safety concerns.

Its the problem of getting rid of the shit now you can't dump it into Beauforts Dyke. The stuff is stored and has been moved from one building to another like musical chairs for 60 years with probably another 200 to go.

Bit like a dose of  herpes really.

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2 hours ago, Frank Hovis said:

I'm astounded by that price for nuclear. 

It used to be cheap, but now they want everything earthquake-proof, tidal-wave proof, and bomb-proof.  Insurance premiums went up a bit too,  over recent years.

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17 hours ago, macca said:

Renewables?

onshore wind $40 per MWH

solar $50 per MWH (and getting cheaper as technology and production advances)

offshore wind $60 per MWH

Gas $60 per MWH

Coal $102 per MWH

Nuclear $148 per MWH

Good job we are not building any new nuclear power stations in the UK.. otherwise our electrical prices would go through the roof!

 

Doesn't bringing back decommissioned count?

Quote

 

The Planning Inspectorate has formally accepted plans to build two nuclear reactors adjacent to the existing Wylfa power station in Anglesey.

He also confirmed formal negotiations between Horizon and the UK Government were underway  on financing support for the £14bn project.

Wylfa Anglesey

 

 

 

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4 hours ago, Frank Hovis said:

I'm astounded by that price for nuclear.  I genuinely thought it was one of the cheapest with the only thing holding it back being safety concerns.

The cost of building and maintaining the plants is huge.

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One of Norway’s richest men has blown a €100 million hole in a stability fund that ensures the safety of derivatives trading in European electricity markets.

Coming in the same week as the 10th anniversary of Lehman Brothers’ collapse, the trading losses will focus attention on the robustness of standards promoted by policymakers globally after the financial crisis.

Einar Aas, a private trader who has been among Norway’s highest earners in recent years due to aggressive bets in European power markets, saw his positions collapse on Monday after extreme market moves in German and Nordic energy markets. He was identified by multiple sources in the market, including a person with direct knowledge of the matter.

https://www.irishtimes.com/business/markets/trader-blows-100m-hole-in-nasdaq-s-nordic-power-market-1.3628329

 

Edited by Democorruptcy

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On 11/09/2018 at 19:43, Errol said:

The UK shut one of the gas storage sites didn't it?

I've just been reading up on what happening at the Rough storage facility, owned by Centrica. They made the decision in 2017 to stop using it for storage following some testing which showed it was no longer cost effective due to the high cost of needing to update the infrastructure.

What I found interesting was that it's not really been 'shut'. It's continueing to produce gas until the reserves are depleted, one article suggested this might be up to 5 years. It seems that the output is low in the scheme of things.

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Another interesting find today, often hear of coal plants being shut down, but it seems many are being rebuilt to run on gas.

Eggborough being an example. Almost 2GW of generation but will reopen in a few years as a CCGT.

I wonder what gas price predictions they used in the business cases for these new CCGT plants?

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