News

Predicting the energy market is always difficult. But correctly predicting market trends can be profitable for businesses. Ahead of 2016 we've analysed a few key market indicators as a way of trying to predict which direction energy prices are travelling in.

Announcements from the Autumn Statement

In the uncertain world of the energy market, statements from politicians are rare beacons of certainty. And they don't come much bigger than taxation and spending announcements from the Chancellor. One of the most important Autumn Statement announcements for big businesses was that firms operating in energy-intensive industries would be exempt from paying environmental tariffs. Energy tariffs were among the factors blamed by steel workers for the closing of factories earlier this year. In his commons speech the chancellor announced: "We're going to permanently exempt our Energy Intensive Industries like steel and chemicals from the cost of environmental tariffs, so we keep their bills down, keep them competitive and keep them here." This news will be encouraging for large businesses operating in energy intensive fields. Smaller firms can also expect to achieve some savings in coming years. Changes to the Government’s energy efficiency scheme which were also announced during the Autumn Statement will shave a small amount off household and small business energy bills. The current Energy Company Obligation (ECO) scheme is to be replaced with a new cheaper energy efficiency scheme from April 2017. In theory these savings should be passed on to you from your energy company but there is no guarantee of this and supplier’s track record shows that they are not always the right at passing on savings.

Paris climate talks

The 21^st UN climate conference is currently taking place in Paris with hundreds of optimistic world leaders descending on the city to fashion a climate deal. Many believe that an agreement will be reached, in part, because the bar has been set much lower this time around. One of the likely effects of the Paris climate conference will be some more stringent carbon tax agreements. Carbon taxes help ensure more equity between hydro-carbon based fuels and renewable energies. Currently though, few countries have introduced meaningful carbon taxes and in the UK we are actually cutting subsidies for renewables rather than increasing them. Larger carbon taxes are on the way at some point. Leaders may reach an agreement in Paris, but the gaps between what rich countries want and what poor countries want may be too large to bridge this time round.

The price of oil and gas

The biggest indicator we have about future energy prices comes from the oil and gas markets. Unfortunately, these markets also tend to be volatile. In recent years, key OPEC nations like Saudi Arabia have artificially depressed the price of oil by flooding the market to counteract competition from shale gas producers in the United States. This strategy has proved successful at marginalising shale, but doubts are beginning to creep in about whether they can keep this up. Much of the analysis has centred on Saudi Arabia’s situation. The country derives 80 percent of its revenue from oil so the crude price slump has understandably hit them quite hard. So much so that some people think that the Kingdom could be bankrupt in a matter of years. This seems unlikely given the countries low rate of debt but purchasers should be prepared for energy prices to increase at some point in the future.