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14.04 2016

Energy Market Overview, March 2016

Mathias Vaarmann

Market Analyst

Nordic market areas experience price rise in March

In this edition of the market overview, we look at how electricity prices rose in March and how the NordBalt cable failures affected the market prices in Latvia and Lithuania. We will discuss why the oil oversupply may continue in spite of the short-term price rise and what caused the euro to appreciate during March.

On the Baltic news front, highlights include the increase of Eesti Energia’s market share to 22 percent and the fact that Eesti Energia subsidiary Enefit SIA will start selling electricity to the Latvian capital Riga, in addition to Tallinn. Explore the topics of this market overview and you will find out how making more use of industrial residual products may decrease the environmental footprint of the oil shale industry, and by how much gas import in February exceeded last year’s level. In addition, we provide an overview of why the Latvian government is recommending that large companies pay more attention to energy conservation and how operations at Latvijas Gaze are to be restructured.

Read more about the topics below

  • Nordic market areas see rising prices in March »

    In March, prices rose in all market areas of the Nordics’ Nord Pool electricity exchange. In spite of that, electricity prices remain at extraordinary lows: the average price in March was 29.41 €/MWh in Estonia, 27.09 €/MWh in Finland, 29,87 €/MWh in Latvia and 30.81 €/MWh in Lithuania. While the average price in the Estonian market area rose 4% during the month and the price in the Finland area, increased 3.8%, Latvia and Lithuania prices were at an extremely low level for the second consecutive month, rising just 0.7% in Latvia and 3.9% in Lithuania with respect to February’s averages.

    Area Average
    €/MWh
    Change compared to
    previous month
    Minimum Maximum
    Nord Pool Estonia 29,41 4,00% 11,18 68,39
    Nord Pool Finland 27,09 3,83% 11,18 68,39
    Nord Pool Latvia 29,87 0,74% 11,18 68,39
    Nord Pool Lithuania 30,81 3,91% 11,18 95,02

    The megawatt-hour prices of electricity vary for every hour of the month. It should be noted that this market overview shows the arithmetic mean prices for the month, meaning that the price listed in the overview applies to customers whose monthly consumption is equally distributed for all hours. The personal monthly average price for each customer depends on the customer’s electricity consumption at different hours and the electricity price in those hours. Thus a customer who consumes power only at peak times may have a much higher price than customers who mainly use power at night. For example, in March, the lowest price in the Estonian, Finnish, Latvian and Lithuanian market areas was 11.18 €/MWh, while the highest hourly price in Estonia, Finland and Latvia was 68.39 €/MWh and, in Lithuania, as much as 95.02 €/MWh.

    Prices in the Latvian and Lithuanian market areas were kept low by the NordBalt cable between Lithuania and Sweden, which is used by Latvia and Latvia to import cheap electricity generated in Swedish nuclear and hydroelectric plants. On 18 March, the Swedish electricity system operator Svenska Kraftnät switched off the NordBalt completely, as a fault was found in the undersea cable. As a result of the cable being switched off, prices of electricity rose in Latvia and Lithuania. NordBalt was re-launched only in late March and the cable was fully up and running only on 30 March.

    In addition, Lithuanian prices were raised by the restriction on transmission cables between Latvia and Lithuania, which also resulted in the price difference between the two electricity markets in March. The transmission capacity between Latvia and Lithuania was restricted by the Lithuanian system operator Litgrid on security considerations, as the Estonian-Latvian cables were overloaded.

  • Crude oil prices on the rise, euro strengthens »

    Signalling rising oil prices, the price of Brent crude was USD 36.8 per barrel at the start of the month and was already past USD 41 by mid-month. The price of a barrel of oil fell back to USD 39.6 by the end of March, for a rise of 7.6 percent during the month.

    After reaching a 12-year low in January, USD 28, the crude price gained momentum again when the major producers – both within and outside OPEC – announced they were considering restrictions on petroleum production. In the first days of April, Saudi Arabia announced that the kingdom would not join in on the restrictions unless Iran and other major oil producers did so as well. That made it likely that the group of major producers would not come to terms on restricting supplies and the worldwide oversupply would continue.

    The price of oil fell close to 4 percent on 1 April after the Saudi announcement. On 4 April, the price of Brent crude fell to the lowest in the last month, around USD 38. On 17 April, the major producers met in Qatar to discuss restrictions on supplies. Iran said that it would not join the restriction before its crude oil export volume returned to the pre-sanctions level. Iranian-produced crude oil is returning to the world’s markets for the first time after it ended its nuclear programme and the West lifted sanctions.

    In March, the euro started gaining against the dollar: at the beginning of the month, the euro was at USD 1.09 but by the end of the month, it had reached close to USD 1.4. The US dollar fell against a number of currencies, including the euro, when Federal Reserve head Janet Yellen announced a cautious approach to hiking interest rates. Investors remain expectant that the Fed will take a more conservative approach to fiscal policy.

  • Eesti Energia’s market share of the Estonian gas market has grown to 22 percent »

    Last year, Eesti Energia grew its share of the Estonian gas market to one-fifth. Thanks to a wide product selection and alternative supply channels from Lithuania, more and more Estonian businesses have chosen Eesti Energia as their supplier, including the food processing company Salvest and Estonia’s largest laundry and cleaning service provider, Baltic Clean.

    “On today’s Estonian gas market, private and business customers alike can choose the best gas seller regardless of which service provider their place of consumption is connected to,” said Eesti Energia’s Head of Energy Sales, Karla Agan. “Eesti Energia’s activity as a gas seller gives Estonian companies the possibility to take competing offers and find themselves the most suitable product and price,” said Agan.

    Agan added that Eesti Energia was currently analyzing the possibility of entering the residential customer gas market to offer home consumers more options for gas and a combined electricity and gas supply agreement through one supplier.

    Three years ago, Eesti Energia began selling gas to large business customers in addition to electricity, becoming the first market participant to offer fixed-rate service plans for customers.

    “Both the fixed and combined price products have helped Eesti Energia to grow its market share. These gas supply services are a good alternative for business customers who have thus far had to buy gas at prices that depend on world oil prices and have had to accept changes in price every month. This, however, reduces the possibility of customers to forecast their costs,” said Agan. In addition to increased competition, Agan said a reason for the growth is that customers want to receive gas supplied from Lithuania, as an alternative to Russian gas.

    Today Elering is preparing to establish a gas market data warehouse, which will lead to greater transparency on the gas market (comparable to that on the open electricity market). Agan says she hopes that, similarly to the electricity market, a common invoice will soon be implemented on the gas market.

    Annual consumption in Estonia averages 500 million cubic metres - close to 5 terawatt-hours of natural gas - which is less than the 8 terawatt-hours of electricity consumed on Estonia’s open electricity market.

  • Enefit SIA will start selling electricity to Latvian capital Riga »

    Eesti Energia's subsidiary company Enefit SIA, which is celebrating in May its 10th anniversary, has won Riga's electricity procurement and will sign contracts with the city for the sale of electricity through the end of 2019.

    For Eesti Energia’s subsidiary trading as Enefit SIA in Latvia, the electricity contract to be concluded with the City of Riga will be the biggest transaction in its 10 years of operations, encompassing 84,000 megawatt hours of electricity consumed annually by the City of Riga at a total cost of EUR 12.8 million.

    “We resumed the sale of fixed electricity contracts in Latvia and Lithuania last year, and it is now evident that doing so has contributed greatly to our competitiveness. With the fixing of prices, we are able to create more customised electricity purchase solutions for our clients, selling more than a million megawatt hours of electricity in Latvia in the space of a year,” explained Jānis Bethers, Head of Energy Sales.

    Jānis pointed out that, in addition to active sales efforts by the company, with the help of the system operators the market participants have come by the option of fixing the price difference risk between the Estonian and Latvian price areas of the electricity exchange and thereby offering their clients more competitive electricity prices.

    Enefit SIA’s electricity sales portfolio currently features 28 local governments as well as major private and public sector clients, including the Latvia State Radio and Television Centre. Similarly to the City of Riga, Tallinn also receives its electricity from Eesti Energia.

    With its 15 per cent market share, our subsidiary in Latvia currently holds a strong second position after the national energy company Latvenergo. In late 2015, we sold electricity to a total of 17,100 consumption sites in Latvia and Lithuania, up one-third from the year before.

  • Baltijas valstu ziņas »

    Studies confirm suitability of fly ash for use in road construction

    The results of the pilot project on the Narva-Mustajõe and Simuna-Vaiatu road segments, which were built using fly ash, showed that the material is well-suited for use in road construction.

    “The pilot project confirmed to us that fly ash has good stabilization and binding properties, as a result of which the ash can be used as a substitute for cement,” said member of Eesti Energia’s management board Margus Vals.

    Ash was used in the first stage of the project to build the stabillization layer on the Narva-Mustajõe road segment, which is 1.6 km in length. In the second stage, the 900-metre Simuna-Valatu segment was built, where fly ash was used for mass stabilization of a peat layer.

    “Oil shale ash has been used before in Estonia for road construction and these roads have been durable. In this pilot project, we used fly ash for the first time with modern mass stabilization technology and we also measured the potential environmental impacts that could stem from it. As the results were highly promising, as the next step we will turn fly ash into a standardized product. This way we can use ash in larger quantities in road construction for layer and mass stabilization, both in Estonia and elsewhere. This will allow us to valorize fly ash, offer road builders a quality product at a competitive price and reduce the use of non-renewables in road and port construction,” added Vals.

    Monthly gas import outstrips 2015 level again in February

    In mid-March, Elering announced that the quantity of natural gas imported to Estonia in February grew 6 percent compared to the same period last year, to 61.9 million cubic metres. Elering said import exceeded last year’s levels in January as well.

    In February, gas sellers imported 5.2 million cubic metres of natural gas from Lithuania, making up 8.3 percent of total gas imports. Last month, gas was imported from Lithuania by Baltic Energy Partners, Eesti Energia and Reola Gaas. The rest of the gas was imported from Russia by Eesti Gaas.

    Latvian government advises large enterprises to conserve energy

    In early March, the Latvian government adopted decisions under which large enterprises have to start conducting regular energy audits or implement processes that ensure more efficient energy use. Under the new rules, companies have to conduct audits every four years and the first of them has to take place within a year of the company’s registration date.

    The change is being implemented in companies with more than 249 employees and whose annual turnover is at least 50 million euros, and in companies that consume more than 500 MWh of energy per year. There are about a thousand such companies in Latvia.

    The companies are also obliged to familiarize their employees with the energy conservation plans approved by the government and to be aware that failure to comply will mean penalties.

    Lativjas Gaze shareholders carry out restructuring

    On 22 March, Latvijas Gaze shareholders approved the plan to restructure the company pursuant to the Latvian Energy Act in April 2017. The company’s head Aigars Kalvitis said the company would be divided into two companies with separate assets and shareholders. One company will sell gas while the other will be in charge of supply and transmission of gas.

    By law, the two companies have to register as companies by 31 December 2017. LETA wire service said the restructuring of Latvijas Gaze will likely be complicated and result in several shareholders wanting to sell off their shares.

    In 2015, Latvijas Gaze sold 1.32 cubic metres of natural gas to consumers, which was 2% less than in 2014. The largest shareholder today is Russia’s Gazprom with 34%, followed by Marguerite Fund with 28.97 percent, Uniper Ruhrgas International GmbH with 18.26 percent, Itera Latvija with 16 percent and smaller shareholders with 2.8 percent.

The market overview has been prepared according to the current market knowledge of the Eesti Energia analyst. The information provided herein is based on public information and sources mentioned in the report. The overview is presented as informative material and on no condition as a promise, proposition, or an official prognosis of Eesti Energia. The opinions presented in the market overview are subject to change and the person presenting them reserves the right to make changes to them. Given the rapidly changing regulation of the electricity market, this market overview or information provided herein is not final and may not comply with situations that may arise in the future. The market overview does not create, end, nor change legal relations (including contracts). Eesti Energia is not liable for any expenses or damages which may occur in relation to the use of the information presented in this market overview.

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