The Bord Gáis Energy Energy Index for July 2012

1. Bord Gáis Energy Index
UNDERSTANDING
ENERGY
July 2012

2. THE BORD GÁIS ENERGY INDEX RISES 8% IN JULY AS OIL PRICES RECOVER
– OIL, GAS, COAL AND ELECTRICITY PRICES ALL INCREASE IN JULY –
Bord Gáis Energy Index (Dec 31st 2009 = 100) Overall summary:
Bord Gáis Energy Index 12 Month Rolling Average The Bord Gáis Energy Index rose 8% in July,
180 the biggest monthly increase since February
2012, as wholesale oil prices rose on supply
concerns and expectations of additional
economic stimulus measures to battle global
140 weaknesses. Along with rising fuel commodity
Points
prices, the ongoing weakness of the euro
played a significant role in the monthly rise in
the Index.
100
As a result, the Bord Gáis Energy Index now
stands at 144, an increase of 4% on July 2011.
60
Jan-09 Apr-09 Jul-09 Oct-09 Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12
1 Mth 8% 3 Mth -6% 12 Mth 4%
Despite the global economic backdrop, wholesale energy prices increased in July, with gains recorded in the wholesale price of oil,
gas, coal and electricity. In July we saw the vulnerability of fuel commodity prices to threats to global supplies or supply failures. A
combination of industrial action in Norway and Colombia, together with escalating tensions in the Middle East pushed prices higher.
Counter intuitively, Brent crude oil prices seemed to gain some support from the raft of poor economic data which stretched from
the US to Europe and Asia in July. As a consequence, the markets began to increasingly price in the benefit that oil would receive as
it became increasingly apparent that stimulus measures and plans from governments and institutions were required and that these
might be delivered. The euro performed poorly against its rivals during the month and lost more ground to the US Dollar and British
Pound. This weakness amplified the commodity price rise by nearly 30%, which impacts negatively on euro zone buyers.
Oil Index Oil
The oil element of the Index was up 10% to
180 157. Despite the negative economic backdrop,
the price of a barrel of oil rose 10% in euro
terms month-on-month in July due to
140 heightened geopolitical tensions and increased
expectations that the governing authorities
Points
in the US, Europe and China and the world’s
main Central Banks will act to stimulate global
100 economic growth.
During the month there appeared to be an
escalation in tensions between the West
60 and Iran as evidenced by the ordering of
Jan-09 Apr-09 Jul-09 Oct-09 Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 new economic sanctions against Iran by the
US, and an increase in the slim possibility of
military engagement or an attempt by Iran to
*Index adjusted for currency movements.
Data Source: ICE
close the Strait of Hormuz. The markets fear
is that Iran’s response to declining oil exports
1 Mth 10% 3 Mth -6% 12 Mth 5% and revenue could result in disruption to the
West’s vital oil supplies. Tensions in the oil
rich region are now not limited to Iran, and
there is increasing concern that the situation
in Syria could ultimately involve neighbouring
countries, which could destabilise the region
and oil supplies.

3. Natural Gas Index Natural gas
250 The natural gas element of the Index was up 4% to 201.
The majority of the month-on-month increase was due
to the ongoing weakness of the euro versus the British
200 Pound. Ireland purchases its gas on the wholesale
markets in the UK and a weakening euro makes those
purchases more expensive.
Points
150 Month-on-month, the average Day-ahead UK gas price
rose in sterling terms due to a pensions dispute at the
start of the month which raised the possibility that
100 Norwegian oil companies would lockout workers on
the Norwegian Continental Shelf and potentially shut
down Norway’s entire offshore oil and gas output.
50 As Norway accounts for 20% of all gas deliveries
Jan-09 Apr-09 Jul-09 Oct-09 Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12
to Europe, concerns over gas supplies put upward
pressure on prices earlier in the month. Government
intervention to prevent the lockout meant prices eased
*Index adjusted for currency movements.
Data Source: Spectron Group back to trade within the now familiar 54-55p per
therm range.
1 Mth 4% 3 Mth -3% 12 Mth 13% Strong Norwegian supplies, better weather toward
the end of the month and expectations of healthy LNG
supplies to the UK weighed on prices but these factors
were not strong enough to lower the monthly average
price month-on-month.
Coal Index Coal
260 The coal element of the Index was up 12% to 131.
European coal prices rose dramatically in July due to
a rail strike in Colombia. The majority of Colombia’s
coal exports are shipped to European markets
205
and Ireland currently imports most of its coal from
there. Industrial action at certain coal mines and
Points
maintenance at Colombia’s main coal exporting
150 terminal has added to the impact of the strike.
Workers from the Colombian private railway
95 company Fenco, which transports coal from
Drummond, Prodeco and Colombian Natural
Resources to coal ports in northern Colombia, went
40 on strike over disagreements with management
Jan-09 Apr-09 Jul-09 Oct-09 Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 over pay and work conditions. With some vessels
being unable to load coal at certain ports for export,
there is a fear over future European coal supplies.
*Index adjusted for currency movements.
Data Source: ICE
However, despite worries over physical supplies in
the coming months there is no desperation yet as
1 Mth 12% 3 Mth 11% 12 Mth -11% the global seaborne market has been described
as ‘oversupplied’, with stocks in Amsterdam–
Rotterdam–Antwerp ports still high. The current price
increase could prove temporary in nature should the
issue be resolved.
Electricity Index
180
Electricity
The electricity element of the Index was up 2%
to 113. As the majority of power produced on the
island of Ireland is generated by burning gas, a 4%
140 rise in the average monthly wholesale Day-ahead
UK gas price in euro terms put upward pressure on
Points
the cost of producing electricity. Higher coal prices
also contributed to the rising cost of wholesale
100 power. A slightly higher average carbon price over
the month also put upward pressure on wholesale
power prices.
Beyond commodity monthly price movements,
60 the ever changing power generation dynamics in
Jan-09 Apr-09 Jul-09 Oct-09 Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 the month combined to inflate prices also. Wind
turbines produced fewer volumes of cheap power;
more efficient plants took the opportunity to shut
Data Source: SEMO for maintenance amid lower summer demand
and in advance of the winter; and the ongoing
partial outage of the subsea interconnector
1 Mth 2% 3 Mth -8% 12 Mth 0%
between Ireland and the UK deprived the market
of its full complement of competitively priced
imported power.

4. FX Rates FX rates
The euro continued to weaken in July and fell
3% versus both the US Dollar and the British
1.60 Pound. Nearly a third of the 8% rise in the index
this month can be attributed to the euro’s
weakness as commodity fuel prices like oil and
1.40
coal (which trade in US Dollars), and gas (which
Ireland buys in British Pounds) are traded in
1.20 currencies that are gaining versus the euro,
making them more expensive for euro zone
1.00 buyers, ceteris paribus.
Despite a brief reprieve for the euro in June
following the euro zone leaders agreeing to
0.80 instruct their finance ministers to implement a
new plan that would involve for the first time
0.60 the possibility of ‘Europeanising’ national debt,
Jan-09 Apr-09 Jul-09 Oct-09 Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12
deepening problems in Spain (as reflected in
the Spanish ten-year bond) and resurfaced
worries about Greece’s future, pulled the euro
down once again. Until a euro zone backed
1 Mth -3% 3 Mth -7% 12 Mth -15% EURUSD plan that the market believes is economically
sufficient, politically feasible, implementable,
1 Mth -3% 3 Mth -4% 12 Mth -10% EURGBP and that delivers growth is presented, bouts
of weakness will continue to plague the euro
along with fears of contagion.
Market Outlook
The outlook for Brent Crude oil prices remains a struggle between market fundamentals, including geopolitical concerns, and
the performance of the global economy. Unfortunately, oil prices remain high despite what appears to be a weakening global
economic situation, and the enormous cost that economies are having to pay for fuels is challenging. During the month, OPEC
reported oil export revenues for 2011 of over $1 trillion for the first time due to escalating global oil prices. As an importer of
fuels, Ireland remains very exposed to market shocks and price movements which are beyond its control.
We did see a fall in natural gas spot prices in Asia over the last month which could mark the end of the very aggressive Japanese
buying following the Fukushima disaster and perhaps the start of higher LNG gas supplies to Europe which have been declining.
However, Japanese LNG imports are expected to remain high as its nuclear reactors are only expected to return gradually during
2012 and beyond so the competition for limited LNG deliveries will remain intense. Forward gas prices had been supported in the
recent past by the uncertainty of vital LNG supplies to the UK this coming winter. Future weakness in the euro has the potential
to amplify price rises or negate price falls for euro zone countries.
Re-weighting of Bord Gáis Energy index Oil 64.93%
Following the SEAI’s 2009 review of energy consumption in Ireland, released in
Q4 2010, there was a 9.3% drop in overall energy consumption. The most notable
drop of 1.39% was in oil consumption in the form of gasoline and diesel. This
reflects the economic downturn experienced at the time. The share of natural gas
Gas
13.52%
and electricity increased by 0.63% and 0.57% respectively. An increase in the use
of renewables and peat, at the expense of coal in electricity generation was also
observed. As a result the Bord Gáis Energy Index has been reweighted to reflect
the latest consumption data. This has had a minimal effect on the overall shape of Electricity Coal
the Index, but may indicate future trends. 18.40% 3.16%
For more information please contact:
Fleishman-Hillard — Aidan McLaughlin — 085 749 0484
Bord Gáis Energy — Christine Heffernan — 087 050 5555
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