Check back here each week for a summary of the factors driving the energy markets

Monday 27 November 2023

Overall last week

The forward gas and power markets last week showed small movements upwards. In the power markets, Summer-24 rose 2.8% to close at £101.64 /MWh on Friday and Winter-23 increased 0.8% to £118.95 /MWh. For gas, Summer-24 closed 0.9% higher across the week at 116.59 p/therm and Winter-24 increased 0.1% to 131.16 p/therm.

Bearish drivers (▼)

The return of eight reactors to the French nuclear power forecast by the 5th December (taking capacity to over 50GW) has put downward pressure on forward prices.

Although temperatures will be cool this week, an uplift in the long-term weather forecast over the weekend means that temperatures are expected to return to the seasonal normal by the second week in December. This, alongside increasing flows from Norway after successful completion of maintenance at the Aasta Hansteed gas field and healthy inventories means that the gas supply picture looks strong.

Bullish drivers (▲)

According to the 20-day forecast colder temperatures compared to the seasonal normal are projected to hit the UK until at least 8 December, which will likely put upward pressure on forward and spot pricing.

Today, 150 contractors working at Shell’s Mossmorran and St Fergus energy plans have started a strike action over the pay conditions. The strike is expected to last up until December the 4th. However, the strike action involved a continuous overtime ban at the sites which is expected to last 12 weeks. Currently the Shell terminal provides about 12% of UK continental natural gas supply.

Elsewhere in the industry:

The Chancellor’s Autumn Statement unveiled a proposal to grant residents located close to new electricity infrastructure up to £1,000 annually off their energy bills, aiming to speed up the rollout out of grid upgrades. As part of a broader strategy, Hunt reiterated plans to expand the electricity grid, introduce measures to reduce grid access delays by 90% and drive clean energy investment.

Donald Trump pledged to “gut” Joe Biden’s flagship Inflation Reduction Act if he was elected president in the upcoming 2024 elections, citing that the cost of certain subsidies was unaffordable. Cutting back the IRA would likely reduce clean energy investment in the United States and increase Europe’s competitive advantage for international renewables investment.

Monday 20 November 2023

Overall last week

Forward gas and power contracts were mixed last week, although the movements were small. Power for Summer-24 decreased 1.0% to £99.35 /MWh and Winter-24 fell 1.2% to £188.03 /MWh. Further along the curve however, Summer-25 and Winter-25 both showed increases of 2.3% and 1.3% respectively.

The direction of these movements was mirrored in the gas markets as Summer-24 decreased 2.0% across the week to close at 115.61 p/therm on Friday, alongside Winter-24 shedding 0.9% to close at 131.11 p/therm. Again, further out, increases were seen in the gas markets with Summer-25 and Winter-25 increasing 0.5% and 0.7% respectively.

Bearish drivers (▼)

A slowing economy and possible recession is likely to drive down power prices. Figures released for Q3 last week showed 0.0% growth for the period. In addition, a sharp fall in inflation to 4.6% has indicated that the economy may finally be cooling down.

Wind generation is forecast to be at or above average for the time of year this week, peaking at approximately 15 GW on Thursday before dropping off towards the seasonal normal of 10 GW through the weekend.

Bullish drivers (▲)

Following the last Contract for Difference auction, where no new offshore wind developers bid in, the UK government is set to increase the strike price by up to 66% for the technology as it seeks to hit its 2030 50 GW offshore target (currently c. 14 GW). Developers stated that the previous £44/MWh (2012 prices) was not high enough to offset increased build costs, driven largely by the increased cost of financing and supply chain squeezes.

Contractors at the St Fergus Shell gas terminal in Scotland have voted to take a week of strike action between 27 November and 4 December. Currently the Shell terminal provides about 12% of UK continental shelf gas supply (i.e., natural gas). In addition, Gassco announced an unplanned outage in the Norwegian gas field Kollsnes, decreasing output by 6 mcm.

Elsewhere in the industry:

Octopus Energy is initiating a £3 billion fund dedicated to offshore wind projects by 2030, supported by an initial £190 million investment from Tokyo Gas. The objective is to draw in additional global investors, with a specific emphasis on European projects. This further strengthens Octopus’ household retail supply arm position in securing the status of the UK’s second-largest energy supplier, pending regulatory approval.

National Grid has launched a vast, $52 billion investment project to tackle the backlog of energy projects waiting to be connected to the grid in both the UK and US. The whole sum is due to be invested before 2026, and is $2.5 billion more than the original investment stated in May. Despite the large investment, the National Grid CEO said that the UK electricity network would still require additional “fundamental reform” and better planning.

Monday 13 November 2023

Overall last week

Forward gas and power contracts fluctuated through last week, falling to their lowest levels this year on Monday before recovering through the remainder of the week. Despite this, gas for Summer 2024 delivery closed the week 3.8% lower than the Friday before to 117.93p/therm, whilst power was more stable, dropping 0.2% to £110.35/MWh. For Winter 2024, power decreased 0.2% across the week to close at £119.49 and gas closed 3.6% lower at 132.26 p/therm.

Bearish drivers (▼)

Despite Russia and Saudi Arabia pledging to maintain oil production cuts (which caused a small uptick in the market last Monday), oil future prices saw their third consecutive weekly decline, now trading around the $81/bbl mark. Worries of slowing demand in China and the US, the worlds two largest economies, along with easing of fears of potential supply disruptions due to Middle Eastern tension, have provided the majority of downward pressure

Record gas storage levels of over 99% of capacity are driving down prices for gas delivered through this Winter as the market anticipates a record carryover of stocks in March 2024, the end of the draw down season. February-delivered Dutch TTF gas fell from €54 to €47 this fortnight as inventories across the EU and UK reached levels 20% above the seasonal norm.

LNG supply is set to be strong over the coming week, with four tankers totalling 403 mcm forecasted to be imported compared to last week’s 280 mcm.

Elsewhere in the industry:

Danish wind turbine manufacturer Vestas reported third-quarter operating profits and revenue above expectations, enjoying a 9% boost to shares last week. This could signal a welcome end to the supply chain issues and high materials prices that have been slowing global renewable development since the pandemic.

The UK government is set to follow plans to compensate homeowners which allow transmission lines near their homes, which it hopes will help to reduce opposition and aid grid connection improvements. Set to be confirmed in Jeremy Hunt’s autumn statement, this will give residents an as yet defined lump sum prior to construction.

Bullish drivers (▲)

LNG consumers in Asia are entering the heating season with temperatures dropping below seasonal norms after an extended period of above-average temperatures. In addition, China has imported 617k tonnes of LNG in the first nine months of 2023, compared to 576k tonnes in the whole of 2022. These factors will likely push up Asian LNG prices, leading to international shippers preferring delivery in Asia rather than Europe.

Wind power generation, although strong today at c. 20 GW, is expected to drop off as the week progresses, with only 6 GW of generation forecasted on Thursday which will place upward pressure on day-ahead pricing.

Monday 6 November 2023

Overall last week

The forward gas and power markets were down strongly at the start of last week, however prices were relatively flat towards the end of the week. Power for Summer-24 closed at £100.52/MWh on Friday, an 8.8% fall on the week prior, whilst Winter-24 closed 6.8% lower at £119.75 /MWh. For gas, Summer-24 fell 8.1% through the week to close at 122.59 p/therm and Winter-24 closed 7.0% lower at 137.19 p/therm. Principally, the market settling down from the recent geopolitical crisis in the Middle East has driven the bearish movements this week.

Bearish drivers (▼)

Prices are falling away from the recent highs of two weeks ago, as panic from the geopolitical tension in the Middle East recedes. Additionally, it emerged that the Balticconnector pipeline damage was in fact accidental, caused by a Chinese container ship dropping anchor too early rather than the intentional Russian sabotage that was initially speculated.

Australian LNG workers have voted to accept deals on pay and conditions struck with Chevron. Although it had looked as though strikes would resume earlier this month, talks facilitated by Australia’s industrial watchdog rescued an in-principal agreement made in September and put an end to a fortnight of strike action.

Bullish drivers (▲)

Wind generation is expected to be mixed this week compared to the high output last week. The forecast generation for tomorrow and Wednesday is between 9 GW and 12 GW, after which generation will decrease gradually to around 6 GW on Saturday.

Below average temperatures are forecasted until Sunday, which will likely prompt withdrawals from gas storage infrastructure across Europe to compensate for increased heating demand putting upward pressure on day-ahead pricing. Beyond this week, however, the forecast for Winter remains mild and temperatures are expected to pick up from Sunday and remain above the seasonal average until the end of next week.

Elsewhere in the industry:

A Carbon Brief publication has suggested that developing countries require substantial annual investment, ranging from $215bn to $387bn, to address climate change adaptation. Despite this, there are major gaps in global adaptation finance, including inadequate funding commitments by developed countries under the Paris Agreement. Bridging these gaps is crucial for climate justice and will be a key topic for negotiation at the forthcoming COP28.

The UK’s oil and gas regulator the North Sea Transition Authority has awarded 27 oil and gas exploration licenses. Further to this, the British government also plans to legislate to mandate annual oil and gas licensing rounds in tomorrow’s King’s Speech

Monday 30 October 2023

Overall last week

Markets were down across last week as power for Summer-24 delivery closed 6.9% on Friday compared to the week prior at £110.26 /MWh and Winter-24 fell 3.6% to close at £128.49 /MWh. In the gas markets, Summer-24 decreased 5.8% to close at 133.44 p/therm and Winter-24 closed 4.1% lower at 147.55 p/therm. Despite these falls in Friday’s closing price, markets this morning are indicating a small price rise associated with Egypt halting LNG exports.

Bearish drivers (▼)

UK wind generation is expected to rise from tomorrows low of 5 GW, from Wednesday through to Friday, where it is forecast to peak at c. 12.5 GW before falling to seasonal norms (c. 9.3 GW).

In its long-range prediction for winter, the Met Office sees a much higher likelihood of warmer than average temperatures across the UK between November and February than colder than average. France, Central and Northern Europe have a lower likelihood of higher than normal temperatures but models still rate the chance of a cold winter as very low across these areas.

LNG imports into the UK have continued to remain elevated compared to September, with 543 mcm (regas volume) due to arrive in the next two weeks. This comes as Freeport LNG, the Texas facility that closed last year due to a fire, has now received approval from US federal energy regulators to reach full operational capacity, adding roughly 5.67 mcm/day of total output.

Bullish drivers (▲)

Egypt has stopped all gas exports as it struggles to meet domestic demand, which has risen on the back of higher than usual temperatures causing power cuts across the country. The North African nation has seen imports fall from 800mn cubic feet/day to zero, which is linked to the closure of Chevron’s Tamar gas field off the coast of Israel. Egypt normally exports surplus gas as LNG to Europe.

Iran has threatened to take retaliatory action against ships crossing the Strait of Hormuz if the US tightens sanctions, a possibility if Iran were to become involved in the Gaza conflict. The Strait is critical for the passage of OPEC fuel; around 80 million metric tonnes or 20% of global LNG flows through the Strait each year.

Elsewhere in the industry:

Estonia’s Prime Minister stated that the three incidents resulting in damage to the Finnish-Estonian pipeline the Balticconnector, and two telecom cables between Estonia, Finland and Sweden are likely to be related. For now, Finnish police are investigating a Chinese-owned container vessel, the NewNew Polar, as the prime suspect in the damage to the gas pipeline. Investigators have stated that a heavy item was found near the pipeline, and the ship was later spotted with its front anchors dropped, suggesting that this may have pulled through the pipeline.

Monday 23 October 2023

Overall last week

The markets were more settled last week than the week previous, as initial volatility and market panic originating from the Israel-Palestine conflict receded and fundamental drivers remained generally bearish. Power for Summer-24 decreased 4.5% over the week to close at £118.49 /MWh and Winter-24 fell 4.3% to close on Friday at £133.34 /MWh. The gas markets were more flat, with Summer-24 increasing 0.3% to 131.50 p/therm and Winter-24 falling 0.1% over the week to close at 153.79 p/therm.

Bearish drivers (▼)

Friday’s planned strikes at Australian LNG terminals were called off as the Offshore Alliance, the union representing workers, reached an agreement in-principal during talks mediated by the Fair Work Commission. A signed agreement is close according to Chevron, who have stated that there are only a few minor sticking points such as reimbursement for travel; tensions do remain seemingly high.

LNG shipments into the UK have begun to rise as we move into the winter heating season with six shipments totalling 666 mcm due in the next two weeks. This compares to 504 mcm for the previous two weeks and 524 mcm for the fortnight prior to that.

Total Energies and Scottish Power have announced that their 1.1 GW ‘Seagreen’ wind farm off the coast of Scotland is fully operational and running at the designed capacity. 1.1 GW of additional capacity represents approximately an 8% increase of offshore wind capacity in the UK. Power will be sold through corporate Power Purchase Agreements which will reduce buying demand on the wholesale market.

Bullish drivers (▲)

The 45-day weather forecast is predicting 1-2°C below-average temperatures for November and the start of December. This, alongside a mixed 10-day forecast is putting upward pressure on gas prices as heating demand looks set to modestly rise.

Brent crude futures are up 2.47% over the past five days, resulting in a second straight week of gains as fears of the Israel-Gaza conflict spilling over into the wider region increased. A wider conflict has the potential to disrupt supply from one of the world’s top producing regions.

Wind generation has reached approximately 5.5 GW so far today, compared to the seasonal average of 9.1 GW. Generation is expected to pick up to the seasonal average by Thursday and remain there for the remainder of the week.

Elsewhere in the industry:

The US has eased sanctions on Venezuela’s ability to produce and export oil after the government pledged to lift bans on opposition presidential candidates and release political prisoners. This will be positive for the overall global supply picture as due to Venezuela’s large reserves and the US hopes that this will alleviate high oil prices.

Monday 16 October 2023

Overall last week

Last week saw substantial rises across the forward energy markets as the they reacted to the Israel-Palestine conflict, the suspected sabotage of the Finland-Estonia gas pipeline and threats of further strikes at Chevron’s LNG facilities. Power for Summer-24 rose 25.5% to close at £124.02 /MWh and Winter-24 increased 19.6% to close at £139.31 /MWh. In the gas markets, Summer-24 closed 27.5% higher compared to the week prior, with Winter-24 rising 20.4% to close at 141.15 p/therm and 153.86 p/therm respectively.

Bearish drivers (▼)

In addition to French authorities being optimistic about gas supply last week, Bruegel, a Belgian economic think tank, has reported that Europe should have enough gas to get through this winter even if Russia were to cut all LNG and remaining pipeline gas supplies into the bloc. It expects gas demand to be 3% lower than last year, driven by increased renewable and French nuclear output, in addition to high prices when compared to historical levels.

Wind generation is expected to rebound strongly from relatively low generation levels today of 2.5 GW (seasonal normal of 8.7 GW) over the coming week, with 8.2 GW forecasted tomorrow and around 14 GW on Wednesday. For the remainder of the week, generation is expected to remain above the seasonal average until returning to that level on Sunday.

Bullish drivers (▲)

Workers at Chevron’s LNG facilities in Australia voted, with 91% in favour, to restart strikes on Friday, as unions look to pressure Chevron into accepting its requested conditions. Last week, Australia’s industrial arbitrator, led negotiations and asked the Offshore Alliance to withdraw the strike plan while talks continued as it looks to minimise supply disruptions. It had been reported last week that there are only a few minor disagreements between the parties, such as reimbursement for meal and travel.

The Balticconnector, a 48-mile gas pipeline connecting Finland and Estonia, burst the Sunday before last, with Finland’s Prime Minister claiming it is highly likely that this was an act of sabotage; seismologists detected blast like waves at the same time as the pipes pressure dropped. The pipeline, which has a total capacity of 80 GWh per day, was transporting around 30 GWh per day at the time of the incident. Repairing the Balticconnector could take several months but Estonia and Finland continue to receive enough gas from other sources (predominately LNG) to cover Winter demand and shortages are not expected.

Elsewhere in the industry

Exxon Mobil Corp has acquired Pioneer Natural Resources for nearly $60 billion, the biggest transaction seen in the US oil industry in decades. This acquisition has turned Exxon into the largest shale producer in the Permian basin, the biggest and most lucrative oilfield in the US which is a critical source of global energy supply.

Dogger Bank, to become the world’s largest offshore wind farm, made first power last week on the first phase of the project. Once complete in mid-2026, the three phase project will have 277 turbines delivering a nameplate capacity of 3.6 GW. The UK’s CfD-backed generation will double by the end of 2025, driven largely by major offshore wind projects like Dogger Bank.

Monday 9 October 2023

Overall last week

Last week saw minor falls across the forward power markets again, with Summer-24 power decreasing 0.8% to £98.79/MWh, breaking £100/MWh for the first time since June, and Winter-24 prices dropped 0.8% to close at £116.46 /MWh on Friday.

The gas markets showed larger falls, with Summer-24 decreasing 2.5% to close at 111 p/therm on Friday, and Winter-24 falling 2.1% to close at 129 p/therm as the supply picture remains strong; Gas Infrastructure Europe has reported that inventories are 19% higher than the ten-year seasonal average.

Bearish drivers (▼)

So far, average temperatures in October have been well above the seasonal normal of 11-12°C, and the long-term forecast is indicating that temperatures will remain above average until at least mid-November. This is reducing forecast energy demand and therefore putting downward pressure on forward pricing.

Wind forecasts suggest that, whilst relatively volatile through this week, output should largely remain above seasonal norms (8.5 GW). Generation is expected to rise today through to Wednesday, up to a peak of c. 12.5 GW, before dropping on Thursday and then rising back to c. 10 GW through the weekend.

French gas operators have reported that France will have enough gas supplies for the Winter, even in the event of extreme cold weather, which is a good indicator for the wider European supply picture. Maintaining this positive outlook will require substantial imports of LNG, smart gas storage management, and continued consumption reduction vs pre 2022 levels.

Bullish drivers (▲)

Gas day-ahead prices jumped by 22% to close at 79.50 p/therm on Friday. Norwegian outages were the principal driver of this, with the Kvitebjørn gas field closed due to a compressor failure. This outage has reduced capacity by 10 mcm/day, and is expected to last until next Monday.

Oil prices rose by as much as 5% after the military clashes between Israel and the Palestinian Islamic group Hamas deepened political uncertainty across the Middle East. The international benchmark, Brent Crude, is now trading at c. $88/bbl, as the war risk premium returned to the markets.

Elsewhere in the markets

The German cabinet announced yesterday that it will bring back mothballed coal fired power units this Winter, to deliver enough capacity to meet demand. The units in question were put on standby in July and will now be able to run until March 2024. Similarly, the UK has opted to keep some spare generation capacity with the 2.0 GW Ratcliffe-on-Soar Power Station.

On Friday, the UK Emissions Trading Scheme confirmed the volume of UK carbon permits to be auctioned to industry next year will fall by 12.4%. With a tighter supply of carbon credits, costs for fossil fuel based generators will increase in the long-term.

Monday 2 October 2023

Overall last week

There was increased trading activity last week as the Summer-23 season came to a close and market participants looked to enact final trades for Winter-23 contracts. Winter-23 power closed at £106.75 /MWh, a weekly change of -3.5% and Winter-23 gas closed at 119 p/therm, falling 4.3% over the week.

Looking across the forward power curve, Summer 24 shed 5.6% over the course of last week to close at £102.82 /MWh on Friday, and Winter-24 closed at £119.99 /MWh, a decrease of 4.0% on the week. For gas, Summer-24 closed 3.9% down at 117 p/therm and Winter-24 closed at 132 p/therm.

Bearish drivers (▼)

Unexpected windy conditions led to electricity spot prices plummeting last week, falling over 40% on Wednesday to 66 p/therm. These conditions mean that renewable output has provided over 60% of total demand in September. Wind generation output is expected to reach 12 GW today and tomorrow, well above the seasonal average.

Supply of gas is strong to the UK, with increased LNG flows from the US, Algeria, Norway and Qatar – 400,000 m3 of deliveries are expected before the end of September. In addition, Australian LNG strikes have come to an end.

Bullish drivers (▲)

Day-ahead prices were driven up on Monday and Tuesday last week by the updated Norwegian gas maintenance schedule, with prices reaching 110 p/therm on Tuesday. Although Troll was back to full capacity last Monday, the shutdown of Skrav gas facility has been extended until 8 October with 22mcm/d unavailable capacity.

A whittling down in the US’s Strategic Petroleum Reserve means that oil prices are highly subject to any weather events causing bottlenecks in supply. In addition, OPEC supply remains tight.

Elsewhere in the markets

Analysis published by the University of Oxford found that wind and solar could feasibly meet double the UK’s energy needs by 2050. The researchers calculated that wind and solar could generate 2896 TWh a year by 2050, with offshore wind providing 73% of the nation’s electricity.

Six firms, including Rolls Royce and EDF, have passed the first stage to be shortlisted to develop British small modular nuclear reactors (SMRs). SMRs have been targeted by the UK government for their quick construction and cheaper capital costs (in comparison to large-scale reactors), to boost the country’s nuclear power capacity to 24GW by 2050.

Monday 18 September 2023

Overall last week

Forward power prices were relatively flat last week, with Winter 23 closing up 0.6% on the week at £113.37 /MWh and Summer 24 decreasing 0.6% over the week to close at £109.28 /MWh. The forward gas markets saw more substantial increases – Winter 23 closed on Friday at 123 p/therm, an increase of 3.1% and Summer 24 closed at 128 p/therm, an increase of 2.2%.

Bearish drivers (▼)

The European Commission announced that it will put forward a European Wind Power Package as the costs of turbines, cabling and wages have risen. The package aims to increase the speed at which projects are approved, improve the action systems within the EU, and put greater focus on access to finance and stable supply chains.

Australian strikes continue to head towards arbitration as Chevon asked Australia’s Fair Work Commission to intervene in its dispute with workers on strike at their LNG production facilities. The tribunal is expected to be held on 22 September however the expected ruling is unclear since it is without precedent. Positively this is the only scheduled hearing date, indicating that the matter will be resolved quickly.

Day ahead continues to trade at a notable discount to front-season (£81.21 /MWh for DA vs £113.37 /MWh for Winter 23), demonstrating how much risk is priced into forward prices, primarily due to weather and geopolitical uncertainty. The level of risk priced in is highlighted by the fact that Summer 23 forward power closed at £110.55 /MWh, yet the DA outturn for summer has been £86.31 /MWh as of 15 September.

Bullish drivers (▲)

NBP day ahead rose on Thursday, closing at 94 p/therm, an increase of 6.7%. The midweek jump was mainly caused by the modified Norwegian gas maintenance schedule published by Gassco. The Troll field’s yearly maintenance was expected to end today but it has been delayed by another day, and the Kollsnes processing plant is operating at 50% capacity.

A 1.1 GW interconnector between England and France (IFA-2) underwent an unplanned outage from 14 – 15 September, putting upward pressure on day-ahead pricing. DA closed at £90.73 /MWh on Thursday, an increase of 4.3% on the day however prices retreated on Friday to £81.21 MWh.

Oil prices have continued a steady rise over the past three months, from lows of $72.26 /bbl mid-June to $93.93 /bbl today (+c. 35%), levels not seen since this time last year. The rise has been attributed to improving economic outlook in high-consumption countries such as the US, and OPEC continuing to squeeze supply.

Monday 11 September 2023

Overall last week

The forward power prices were down again last week, with Winter 23 down 5.6%, closing on Friday at £112.74 /MWh and Summer 24 falling 3.2% to close at £109.96 /MWh. The forward gas markets saw similar decreases, with Winter 23 decreasing 3.2% to 121 p/therm and Summer 24 falling 3.3% to 126 p/therm.

Bearish drivers (▼)

Last year the EU launched a temporary joint gas buying scheme, as a response to high energy prices after the Russian invasion in Ukraine, in order to increase energy security. The scheme is due to expire in December. However, the EU has suggested making it permanent to prevent competition between member states in the case of another fuel supply crisis.

G20 countries this week pledged to enhance their renewable energy goals, with the group agreeing to triple capacity globally by 2030. A global increase in capacity will reduce intermittency in areas of high interconnector capacity, such as Europe, as more supply becomes available.

Decreases this week were also partly driven by market sentiment that recent price spikes due to the Australian LNG strikes were disproportionate to the supply impact. Recent falls in prices reflect a correction to this initial overreaction regarding supply fears.

Bullish drivers (▲)

Despite Thursday’s postponement, workers at Chevron’s LNG facility went on partial strikes on Friday after talks broke down. It is expected that the output of the facilities will be significantly disrupted. NBP gas front-month rose on Friday by almost 6% to 79.5p/therm.

The situation evolved over the weekend, with Chevon not expecting to reach a deal with the unions and is instead pursing legal means to stop the strikes. This will involve a mediator forcing parties into an agreement that they are otherwise unable to make. The union responded by saying that they will escalate the strikes to “two-weeks of 24-hour strikes from Thursday [14 September]”.

Renewable generation decreased substantially on Thursday and Friday as the anticyclone delivering the dry and warm forecast was less favourable for renewable generation. Wind power generation was less than 1 GW on Friday, although this is expected to recover throughout this week.

Monday 4 September 2023

Overall last week

The forward power markets were marginally down over the course of last week as we moved into the final month of trading for Winter 23, which fell 2.3% to £119.42 /MWh, whilst Summer-24 decreased by 0.6% to £113.62 /MWh. The gas markets were mixed, with Winter-23 falling 1.3% to 125 p/therm and Summer-24 gas rising 1.1% to 130 p/therm.

Bearish drivers (▼)

France is set to become a net exporter of power again this Winter, after losing that feat last Winter for the first time in 40 years. Last year, the EU nation was plagued by corrosion issues with many of its ageing reactors, leaving its capacity to peak at 44.5 GW in February; capacity is expected to rise as high as 58.6 GW this Winter, ramping up from 38.7 GW currently to 50 GW in November.

Ofgem has announced that it will introduce new rules to ban generators from scheduling plant maintenance during peak times since they are restarting at times of inflated prices. Long term this will reduce capacity market payments for consumers.

EU industrial gas demand is not expected to recover to pre-2022 levels, with current estimates suggesting that it is currently c. 10% lower. Investment has stalled due to high interest rates and participants ‘losing faith’ in gas due to high price volatility.

Bullish drivers (▲)

Chevron LNG workers in Australia are set to strike from September 7, though talks are ongoing to attempt to avert this. Should it go ahead, action will include daily stoppages of up to 11 hours and are initially expected to last until September 14. Talks between Chevron and the union continue, but whereas Woodside managed to reach a resolution before action was called, Chevron appears less likely to budge.

UK wind output, which has been below average for the past week, is forecast to remain relatively low for the next week sinking as low as 2.5 GW on Saturday before recovering towards the seasonal norm mid next week. Lower wind output increases gas for power demand, which is required to plug the gap left.

Further financial struggles are becoming evident in the wind sector, with Orsted’s share price down 20% this week as they announced reductions in the value of their US assets due to supply chain issues and interest rate hikes. Also, BP and Equinor are seeking a 54% increase in the price paid for wind power they generate of the west coast of the USA.

Monday 28 August 2023

Overall last week

Energy prices have been somewhat volatile through the last week, primarily driven by the changing situation of strike action at Australian LNG facilities. Baseload power for Winter 23 increased 7.6% through Monday and Tuesday, before sliding 14% across Wednesday and Thursday as it became apparent that the Woodside Energy strikes would be averted. Following this, prices then increased again on Friday and in early trading this morning as unions released details of potential industrial action on Chevrons facilities.

Bearish drivers (▼)

Last Thursday, workers at Australian LNG facilities operated by Woodside Energy voted to ratify a deal which included more favourable pay, job security and roster conditions. Markets responded strongly on the back of this news, as these facilities are responsible for c. 6% of global LNG, with front month NBP falling 24% though Wednesday and Thursday.

High EU gas inventories have helped to soften any upward movement in gas and power prices, with stores currently c. 92.5% full, breaching the 90% EU mandated target well ahead of schedule. Only five countries remain below the target, though they are all relatively close to the required winter level (Belgium 89.7%, Denmark 89.2%, France 88.4%, Latvia 81.1%, Romania 86.8%).

Following temporary suspension of some French nuclear output due to high temperatures of cooling water, EdF has been able to reopen some of its reactors as temperatures have dropped on the continent. In total, five reactors with cumulative generating capacity of 6.1 GW have been restarted from 21 August to 25 August.

Bullish drivers (▲)

The UK is currently experiencing an extended period of low wind output, with current forecasts suggesting that generation will remain below the seasonal norm (8.5 GW) for the next 10 days. This follows a similar pattern to last seven days, which averaged 3.23 GW.

Chevron LNG workers in Australia are set to strike from September 7. Action will include daily stoppages of up to 11 hours and are initially expected to last until September 14. The two facilities affected, the Gorgon and Wheatstone LNG projects in Western Australia, account for about 5% of global LNG production. Talks between Chevron and the union continue, but whereas Woodside managed to reach a resolution before action was called, Chevron appears less likely to budge.

Maintenance across Norway’s gas production facilities is currently reaching its late-summer peak, with the impact to exports nearing 40%, providing some upward pressure on spot pricing. This level of reduction is expected to continue until at least the end of next week, after which the schedule will gradually ease.

Monday 21 August 2023

Overall last week

Prices continued to trade higher by the end of last week with both Winter-23 and Summer-24 power contracts closing upwards on the week by around 5.8% and 5.3% trading at £126.69/MWh and £117.56/MWh respectively, though news over the weekend that workers at Western Australia’s LNG facilities may strike as early as the beginning of September has provided some bullish momentum this morning. For gas, Winter-23 closed at 136 p/therm and Summer 24 closed at 135 p/therm, up 6.9% and 5.1% on the week respectively.

Bearish drivers (▼)

Wind generation is forecast to pick up through the next few days following less-than-expected generation over the weekend. Forecasts had expected approximately 14 GW but generation peaked at only 9.7 GW on Saturday. It is expected that generation will peak at approximately 19 GW on Wednesday, well above the seasonal norm.

Gas stocks in NW Europe are at a record high for this time of year, at 91% of storage capacity, surpassing the 90% that was originally set for 1 November. Rising levels of storage are expected to start putting downward pressure on day-ahead pricing as demand for storage begins to slacken, and it may begin to diverge from front-month. High storage levels should help to soften the effects of any major supply changes.

Last week saw the European gas benchmark, TTF (Title Transfer Facility), trade at a premium to its Asian counterpart, JKM (Japan Korea Marker), for the first time since early June, helping to incentivise increasing LNG flows into Europe.

Bullish drivers (▲)

Norwegian gas supply is about to enter another period of heavy scheduled maintenance, which will see a reduction of nearly a third of supply during its peak. The maintenance impact will begin to ramp up today to a peak lasting from August 26th to September 8th, after which it will tail off until completion at the end of September. As with the last period of maintenance in early summer, there is the possibility of significant extensions to planned maintenance once it begins.

Carbon EUAs have increased to almost reach €90/tCO2 last week, breaking the 100-day moving price average, largely driven by August’s halved auction volumes, . Weather forecasts are providing mixed signals, with warmer weather in central Europe driving cooling demand, increasing gas burn and therefore increasing the demand for carbon credits.

The situation at Australian LNG facilities evolved over the weekend. Unions for workers at the Woodside Energy North West Shelf offshore gas platforms on Sunday announced that they may strike, and as early as September 2. The strike could eventually disrupt Australian LNG shipments as the Woodside and Chevron facilities supply about 10% of the global LNG market, though it is yet to be seen as to whether this is a play to get more favourable conditions for its workers.

Monday 14 August 2023

Overall last week

Last week saw notable gains across the forward power and gas markets following news of potential strikes at Australian LNG facilities. Baseload power for Winter 23 closed 5.3% higher across the week at £119.71 /MWh and Summer 24 increased 4.2% to close on Friday at £111.68 /MWh. For gas, Winter 23 rose 9.2% to close at 127 p/therm and Summer 24 closed 5.2% higher at 129 p/therm.

Bearish drivers (▼)

LNG flows into the UK restarted again last week following slump in arrivals through June and July. There are currently two cargoes due to come into the UK in the next week, totalling 0.433 bcm. On the continent, there are a further 9 shipments due to arrive, though this includes none into Germany.

Gas stocks in NW Europe are at a record high for this time of year, at 89% of storage capacity. If additions continue at the current rate, c. 0.3% per day, 95% capacity could be reached before the end of August. Rising levels of storage are expected to start putting pressure on day-ahead pricing as demand for storage begins to slacken, and it may begin to diverge from front-month.

After a slump mid-week, wind supply recovered steadily from Thursday until Sunday, reaching a peak of c. 13 GW on Saturday, pushing the System Sell Price to -£77/MWh around midday for a couple of hours. Generation is forecast to be volatile again this week, with output dropping to c. 1.5 GW on Wednesday before recovering to c. 12.5 GW on Friday, which is currently trading at £60/MWh.

Bullish drivers (▲)

The rises in power and gas contracts last Wednesday followed news that workers at three of Woodside Energy Group’s and Chevron’s Australian LNG facilities, which are responsible for 10% of global LNG supplies, have voted to strike. If strikes materialise it could see greater competition between Europe and Asia for LNG, with Australia a key supplier for Japan and Korea.

Following news of Vattenfall suspending its wind projects, and Siemen’s €4.5bn loss, Danish wind turbine maker Vestas has now reported supply chain and regulatory issues. The CEO of Vestas has stated that whilst supply disruptions, caused by Covid and the war in Ukraine, are easing, their order book has decreased as inflationary pressures set in – the main issue is high interest rates driving up costs of wind projects, due to their large initial capital investment nature.

In wider commodity markets, oil continued to climbed again last week following a small slump in the early part of the week, with the extension of cuts by Saudi Arabia and Russia outweighing weak Chinese inflation data (-0.3% year on year). In the past month, Brent futures have risen 6.7%, and are currently now trading at c. $86/brl, its highest level since April 23.

Monday 7 August 2023

Overall last week

Seasonal forward pricing was marginally down over the course of last week as the supply picture remained largely unchanged, with the Winter 23 power contract falling 0.6% to £113.66 /MWh (near the 12-month low of £112.21 /MWh) and Summer 24 power down 2.6% to £107.19 /MWh. In terms of gas, Winter 23 fell 0.8% to 117 p/therm and Summer 24 decreased 1.5% to 122 p/therm.

Bearish drivers (▼)

Russian gas deliveries to Europe rose by 6% in July to reach 3.8 bcm, with additional gas flowing through the Turkstream pipeline offsetting a 24% decrease in LNG shipments from Russia to Europe. Despite high storage levels (87.10% as per AGSI) and good flows putting downward pressure on prices, these flows show how Europe still has an element of dependency on Russian gas, and the prospect of Russia cutting remaining supply is a notable risk factor heading into the winter.

The Department for Energy Security and Net Zero have announced that there will be increased funding for the UK’s renewable CfD scheme. The scheme, which was launched in 2014 and is currently going through its fifth auction, will have its allocation increased by 18.5% to £227m (in 2012 prices), which includes £190m for established technologies such as solar, wind and energy-from-waste, whilst emerging technologies such as geothermal and tidal stream will receive the remaining £37m.

After a bleak few weeks, the weather is set to improve with temperatures gradually picking up daily until Thursday. The supply-demand balance for gas is therefore set to remain more comfortable in the UK than in NWE this week, and as a result we could see some considerable exports to the continent.

Bullish drivers (▲)

Since June, the price of Brent crude oil has rallied from $72 /bbl to over $85 /bbl today, around its highest level since April. Prices were further supported following an OPEC+ meeting last Friday, where Saudi Arabia (the worlds top exporter) and Russia announced they would extend supply cuts of 1.3 million barrels per day combined into September, keeping the supply picture relatively tight in the second half of the year.

UK ministers are set to expedite plans to overhaul the country’s electricity transmission and distribution grid, with the intention to cut the time taken to deliver the required projects from 14 years to seven years. Although infrastructure upgrades such as this will likely cause increases to bills in the short term (in the form on non-commodity costs), they are crucial to reducing long-term grid constraints and make a net-zero electricity system feasible.

Wind output was mostly below average over the weekend, with approximately 5.4 GW of generation on Saturday. Moderately weak wind output is expected to continue until at least Friday, with generation bottoming-out on Thursday at about 3.5 GW, putting upward pressure on day-ahead power prices throughout the week.

Monday 31 July 2023

Overall last week

As front-month changes over to September, energy prices have seen another overall bearish week, with forward pricing falling across the forward curve. Falls were sharper in the short term, with baseload power for September 23 delivery dropping 6.7% to close at £76.19/MWh, its lowest level since November 2021.

Bearish drivers (▼)

EU gas storage levels continue to tick up, with inventories now at 85.37% (as per AGSI), with most of Europe’s largest economies much above this level. These storage levels do provide a buffer should there be any unplanned outages through August and September. However, French storage remains at risk of not hitting the EU’s 90% requirement as their storage level lags behind at 75.17%, exacerbated by the European heatwave reducing its nuclear output.

Despite EU carbon being relatively flat in the last couple of weeks, the UK carbon market remains soft with UKAs actually falling by 5% to £46.85/tCO2. With UK ministers making noises about going softer on net-zero regulation and even rolling back previous commitments, speculative traders are shying away from UK carbon – a contrast to the EU where the prospect of ever-tightening rules has kept carbon prices elevated.

Wind generation in the UK is forecast to remain above average until Friday before falling at the weekend. Output is expected to peak at c. 11.5 GW, which will provide some downward pressure on spot pricing; day ahead is trading around £70/MWh this morning, 14% below the average for the last two months.

Bullish drivers (▲)

Oil pricing has continued its upward trend through this week, with Brent Crude trading around the $85 /bbl mark, a 13.5% monthly rise. This has largely been driven by optimism on the outlook of Chinese demand, as the country continues to recover from its zero-Covid policy. The price of Russian Crude (Urals) has also increased, now close to $69 /bbl and well above the G7 price cap, which has led the US to remind insurance companies to adhere to the conditions set out in the cap.

After an absence of LNG deliveries over recent weeks, the UK is now scheduled to see three deliveries over the next fortnight (from Norway, Qatar and the US), with the first scheduled for Thursday 3 August. June and July, however, saw a lack of LNG flows to the UK as demand in Asia ticked higher (Asian LNG demand hit a 6-month high in July), and July marked the third consecutive month of declining LNG flows from the US to Europe (down 38% from an all-time high of 5.52 million metric tons in April).

Monday 24 July 2023

Overall last week

Energy markets saw marginal increases through last week following consecutive weeks of decline, with the European heatwave outlining France’s nuclear power vulnerability due to their cooling systems. Baseload power for Winter 23 delivery rose 4.9% to close at £121.20 /MWh on Friday, with gas rising 7.8% to 126 p/therm. Further down the forward curve, Summer 24 power increased 6.7% to £113.38 /MWh and gas rose 9.3% to 130 p/therm.

Bearish drivers (▼)

European gas storage is now more than 83% full, with 90% expected to be reached by the middle of August. Storage injections could see a further boost thanks to a loosening of Norwegian flows and subdued demand, plus higher exports of gas from the UK thanks to persistently strong wind-power generation in the first half of July.

Last weekend saw strong wind output, with generation peaking at 12 GW on Sunday. This high capacity fed through to spot prices, with hourly N2EX prices falling as low as £16 /MWh on Sunday. Generation is forecast to fall back towards the seasonal norm (7.5 GW) in the early part of the week before increasing again on Friday.

Construction began on a 1.4 GW interconnector between Great Britain and Germany last week, directly linking Europe’s two largest energy markets for the first time and boosting energy security for both the UK and Germany. Long term, these projects are beneficial to Great Britain if Germany is to become a more favourable country for renewables generation though generous subsidies since Great Britain will be able to benefit from Germany’s excess power.

Bullish drivers (▲)

Increases in prices last week have been partly driven by positive inflation data, easing fears of both a significant recession and further interest rate hikes. The UK reported lower-than-expected inflation figures of 7.9% – the lowest level in more than a year.

Swedish utility company Vattenfall has halted its 1.4 GW wind farm, located off the coast of Norfolk, citing cost pressures – the CEO reported that overall costs have increased by around 40%. The project won a CfD in 2012, guaranteeing a minimum price of £36.35 /MWh ( c. £45 /MWh in today’s money). It became clear to Vattenfall that this price was no longer sustainable due to inflation, supply chain challenges and interest rate rises. The struggle to profitably operate at these old strike prices indicates how future strike prices may be permanently higher to ensure profitability for associated projects.

The European heatwave is expected to drive up cooling demand on the continent, reducing supply available to the UK through interconnectors. The heatwave is also reducing nuclear output, with high temperatures expected to impact the cooling systems at plants. At the 3.6 GW Bugey plant , for example, river temperatures are expected to be 3 °C above that required for cooling, resulting in potential generation curtailment.

Monday 17 July 2023

Overall last week

Markets continued to decline through last week, with the reasonable short term falls tapering off further down the forward curve. The end of a proportion of Summer maintenance at Norwegian gas facilities helped to push gas for August 23 delivery down 22.6%, with baseload closing on Friday down 13.1% week-on-week.

Bearish drivers (▼)

Shell announced last Wednesday that the Norwegian Nyhamna gas processing plant would restart operations at the latter half of the week. During planned maintenance (which began in mid-May) issues with the plant’s cooling system were discovered, which led to a 25 day extension of its outage from 21 June to 15 July. This news started a rally that pushed front season baseload up by 23%. The announcement by Shell has eased fears of any further extension of the outages, giving confirmation that 79.8 mcm/day will be back on the market.

Strong wind around the UK over the weekend helped push spot pricing down to some of its lowest levels so far this year, with generation at 14.6 GW on Saturday before dropping slightly to 11.7 GW on Sunday. The average spot price for across the weekend was £47/MWh, which consisted of 30 negative pricing periods (out of a total of 96), including a minimum of -£32/MWh in the early hours on Sunday.

Centrica signed a long term $8bn, 1mt/yr LNG supply agreement with the U.S.’s Delfin Midstream for its planned deepwater port, set to open in 2027. Equating to about 14 cargoes per year for 15 years, it is one of very few long-term British LNG supply agreements and runs counter to the country’s typical procurement of shipments on spot-pricing. The approximate unit cost under the agreement is £33/MWh, broadly in-line with today’s Summer prices.

Hornsea 4, a proposed 2.6 GW wind farm located of the East of England has been awarded planning permission after a five month delay due to additional consultations. Large-scale wind projects, such as Hornsea 4, help to make significant progress toward UK’s goal of 50 GW offshore wind by 2030 and will no doubt increase the UK’s energy security.

Bullish drivers (▲)

Oil prices continued to rally last week, with the global benchmark Brent Crude hovering around $80 /bbl on Thursday, up about 12% in two weeks. This was broadly down to positive US inflation data increasing the chance of the US’s interest rate hiking nearing the end. The higher oil price was also reflective of the International Energy Agency predicting that oil demand would hit a record high this year (with an increase of 1.1 mbpd), despite economic headwinds putting downward pressure on overall demand.

LNG flows into the UK continue to remain low, with just one shipment of 0.212 bcm expected in the next two weeks. Germany, Netherlands and Belgium are expected to receive a total of 10 cargoes in the same time frame, which is still lower compared to recent months, though demand in Europe remains relatively low given that EU gas storage broken through 80% on Saturday.

Monday 10 July 2023

Overall last week

Forward pricing remained largely stable last week and seasonal pricing seems to have found an equilibrium with little movement in the last two weeks, trading in the same £5/MWh range in this period. However, in the short term the remaining Summer 23 monthly contracts saw some modest falls with front month falling by 9.7% through last week to close at £84.87/MWh on Friday.

Bearish drivers (▼)

Gas storage levels continue to tick up towards the EU mandated 90% by 1 Nov. Despite stocks filling at a slower rate this year (+2.86 TWh/day) than the 10-year average (+3.06 TWh/day), the high inventories at the end of Win-22 mean stocks are currently at 79.45% capacity vs the 10-year average for the time of year of 60% (as per AGSI).

Wind generation is forecast to rise above average in the first half of the week, peaking at c.10.8 GW on Wednesday, then falling back towards the seasonal norm (6.6 GW) before rising again to c. 15GW over the weekend. High wind generation means that more gas can be injected into storage facilities whilst providing downward pressure on spot pricing. Strong wind generation on 1-2 Jul saw spot prices fall below zero for many half hourly periods, leading to the CfD price received by generators ceasing. As part of the government CfD contract, if spot prices fall below zero for more than 6 hours consecutively, generators will receive no payment for the entire period. Some generation was curtailed to avoid being subject to this; prior to April 2016, generators under CfD would have been subject to negative pricing in this example. The average price for the whole weekend was just £24.57/MWh, with 30 out of 96 periods producing negative pricing down to a low of -£76.51/MWh.

Despite gas and power prices falling in H1 2023, there has not yet been evidence of an uptick in demand following last years’ demand destruction. In Germany, the industrial sector recorded a 10% drop in consumption from Jan to May in comparison to last year, indicating that consumption cuts in the I&C sector may remain in the long term.

Bullish drivers (▲)

One of the UK’s nuclear power stations, Hartlepool 2, is set to reduce output from the end of this week as part of its planned maintenance programme. This will reduce its total output by 595 MW for approximately 10 weeks, joining Heysham 2-8 reactors, which are operating with 615 MW of capacity offline (though this is due to restart again on 23 Jul). The Hartlepool which became fully operational in 1983 has an expected end of life in Mar 2024.

LNG flows into the UK have continued to slow, with only one cargo (0.212 bcm from Qatar) on the roster for the next fortnight following last Friday’s 0.261 bcm arrival of the Umm Slal tanker into South Hook. Higher prices in Asia, driven by an increase in Summer cooling demand, have helped to divert some cargoes towards the Pacific, with month ahead JKM trading c. 16% higher than the European TTF benchmark.

Monday 3 July 2023

Overall last week

Seasonal forward pricing saw marginal increases last week, with a drop in the early half of the week followed by three consecutive days of gains up to Friday. It also emerged that the UK generated a record 47.8% of its energy from renewable sources in the first quarter of this year, occurring despite less favourable weather conditions in Q1 for renewable generation alongside outages at bioenergy plants.

Bearish drivers (▼)

Ofgem is to crackdown on power stations gaming UK’s electricity market system to make excessive profits. This follows an investigation that found out that generators have been holding back generation capacity so that they can fetch higher prices in the back-up power market. The investigation revealed that this practice added £3.1 bn in costs last year. On the most expensive days, some generators charged up to £6,000 /MWh to maintain supplies.

Across Europe, gas prices generally dipped last week, primarily driven by strong wind output. Peak demand was 4.7 GW on Thursday and was expected to reach c.12 GW on Friday. However, continued outages at key Norwegian gas infrastructure sites has limited the downward pressure on prices.

The French electricity supply and export outlook is expected to be more favourable than the past 12 months due to the improved nuclear output. Even if the weather conditions are not ideal, for example during heatwaves where there may be a lack of cooling capability, the availability of nuclear power is expected to be sufficient.

Bullish drivers (▲)

GB-based coal plant operators Drax and EDF have closed their power plants and started decommissioning. Their power plants were available to provide back-up power when supply was low last winter, though were only called upon a handful of times. In the meantime, Uniper’s Ratcliffe plant will be available under a separate capacity market.

Latest data suggests that LNG competition between Europe and Asia is returning as Asian buyers take advantage of this year’s lower prices and European buyers ensure sufficient flows to maintain storage injections. While Chinese imports of LNG remain below 2021’s record highs, it imported as much LNG in the first 22 days of June as it did in May, and imports from March to May were up 13%-18% from last year.

National Grid infrastructure upgrades are likely to meet stiff opposition from local communities. With 26 onshore wind projects identified, communities are taking action against infrastructure deemed ‘ugly’ required to deliver power to the placed that it is needed. If this continues, the current rate of progress will mean that the UK will not have a net-zero ready grid until 2084, 34 years past the governments 2050 target.

Monday 26 June 2023

Overall last week:

Last week showed general decreases in both the forward gas and power markets, however mid-week increases demonstrated how high volatility remains in the market. Gas flows from Norway remain a significant driver, alongside the macroeconomic situation in Western economies.

Bearish drivers (▼)

A 759 MW Dutch offshore wind farm, operated by Shell and Eneco, produced its first electricity to the Dutch mainland. As production increases, it is hoped that it will have an annual generation of about 3.3 TWh. With interconnectors already existing between The Netherlands and Great Britain, it is hoped that additional generation capacity will supress domestic wholesale prices.

Looking more long term, Sizewell C, a proposed 3.2 GW nuclear power plant to be constructed by EDF in Suffolk, has overcome a legal challenge from environmental activists at London’s high court. While this is a positive step, up to 60% of the funding is yet to be found despite the hope that construction will begin in 2024, with construction taking approximately 10-15 years. Nuclear projects such as these are likely to become an essential baseload provision of power in GB’s future energy mix.

On the back of bearish economic data from several large economies such as the US and UK, oil priced dipped slightly at the end of this week, with Brent Crude down 1.3% at $76.18 /bbl. With inflation in the UK stubbornly high, interest rates rose a further 0.5% , with the hope of slowing economic growth likely to have the consequential effect of reducing overall oil demand.

Bullish drivers (▲)

Norway’s Norne field is still on unplanned outage since the end of May. According to Gassco, Asgard and Skarv have also been on unplanned outages today, expected to last until tomorrow. Overall, Norwegian gas output is looking weaker than expected due the heavy maintenance. Natural gas production in May fell by almost 66mcm compared to the previous month, 7.4% below the forecasted decline.

The Ukrainian energy minister has said that gas flows from Russia through their country could come to an end in 2024 after contractual obligations (which were agreed in 2019) between Ukraine and Gazprom expire. The pipeline through Ukraine accounts for approximately 5% of Europe’s total gas imports (with certain countries such as Austria and Slovakia relying on it for 50% and 95% of their imports respectively) and given the well-known tightness of supply it is likely that this will put upward pressure on gas prices over the coming year.

The burden of non-commodity costs on customer’s bills is set to increase further due to Ofgem’s plans for a Future System Operator (FSO). The FSO is a proposed aspect of the UK’s plan to decarbonise the energy sector by harmonising the gas and electricity system to deliver clean energy across the network though strategic planning, emergency preparedness and provision of advice to relevant parties. It is expected that one-off costs of ESO, which will be passed onto customers, will reach £390 million.

Monday 19 June 2023

Overall last week:

Energy prices continued their upward trend last week, with front month baseload power more than doubling over the last 10 days following a combination of bullish drivers.

Bearish drivers (▼)

Equinor’s Hammerfest LNG plant was restarted on Wednesday following a two week outage that knocked 5% (18.4mcm/day) off of Norway’s gas exporting capacity. This should help ease some fears in the market following a few high profile outage extensions in recent memory, most notably Freeport LNG, providing downward pressure on spot pricing.

Despite fears in the market that there may be difficulties in filling gas storage following some outages, storage inventories continue to remain remarkably high for this time of year at 72.91% as per AGSI. The average injection rate through the last 7 days has been 0.31% in spite of the current unplanned maintenance and increased cooling demand; should this rate remain the same, inventories will reach the EU mandated 90% target by the second week of August.

National Grid believes the UK has a lower risk of power shortfalls this Winter than last year, with a system margin of 8% (4.8 GW) expected, reducing the likely supply deficit period to 0.1 hours. Increased wind capacity, including the addition of Dogger Bank A this summer, along with the continuation of last years Demand Flexibility Service, have helped to plug any gaps, though talks remain between National Grid and Drax to keep two coal power plants in Yorkshire on standby as emergency backup, despite the units’ decommissioning having begum in April 2023.

Bullish drivers (▲)

On Tuesday, Shell announced that there would be an extension to Norway’s Nyhamna gas processing plant by 25 days, citing an issue with the plants cooling system. This delay to reopening is expected to cut output by up to 13 TWh (equivalent to 1.15% of EU gas storage capacity), as the plant processes gas produced in the Aasta Hansteen and Ormen Lange gas fields, which will also be shut down for this period. The plant is expected to reopen on 15 July.

Reports emerged on Thursday that the Dutch government is set to permanently shut down the Gronigen gas field by 1 October 2023. The field, once Europe’s largest source of gas, has been producing gas since the early 1960’s, though has been subject of much local opposition as it has been causing hundreds of earthquakes. The plant had been set to close on 1 October 2024, subject to European supplies, meaning that 2.8bcm will be taken off of the market.

Spot prices have increased as much as 80% in the past two weeks, with below average wind generation providing some upward pressure. The early part of the week saw output of c. 4 GW before rising to the seasonal norm of c. 6.6 GW on Wednesday and then falling back to 2.5 GW in the latter half of the week. Falling wind generation increases the need for gas for power generation.

Rising temperatures in Europe have increased cooling demand, with temperatures on Friday four degrees above the seasonal average and set to rise a further two this weekend in Belgium, The Netherlands, Germany and France. The UK has also seen some exceptionally warm weather, though this is expected to fall through the coming week.

Monday 12 June 2023

Overall last week:

For both gas and power, the forward markets saw steady increases across the board, with prices supported by Norwegian gas outages and a lower wind forecast for the coming week.

Bearish drivers (▼)

European gas storage levels are at 71.8%, significantly higher than levels of 48.50% this time last year. Ukraine has the largest underground gas storage facilities in Europe, and in a bid to boost Europe’s energy security, Brussels is in talks with banks to provide guarantees to companies willing to store gas in Ukrainian storage. Only companies with high risk appetite are using the facilities, despite 80% of Ukraine’s storage capacity being located in the west of the country (furthest from the front-line).

In wider commodity markets, oil prices have not seen increases that Saudi Arabia had hoped following its announcement on Sunday of a 1 million barrel per day cut. The middle eastern nation is looking to support flagging oil prices to fund its investment programme, which includes a $500bn desert city project; the IMF estimates that it needs prices above $80.90/brl to fund this. Whilst the cuts provided some upward pressure, global recessionary fears and worries of further US interest rate hikes have dampened any potential upward movement.

The Chinese government announced that China’s renewable energy sources now account for more than 50% of its total installed electricity generation capacity. China’s plans to diversify away from fossil fuels and decrease carbon emissions will potentially decrease the current LNG price volatility and competition with Europe in the long term.

Bullish drivers (▲)

Forward markets for both gas and power were driven up last week, with all seasons seeing gains of approximately 5% or more. A significant driver for this extension is Norwegian gas outages and a lower wind forecast for the coming week. This will keep the supply to the United Kingdom tight as the amount of gas arriving through pipelines from the Continental Europe reduces. The lower than expected wind output will exacerbate the tight supply as demand for gas generation increases. Analysts at Engie do not believe that the fundamental drivers justify this small uptick, however downward pressure on prices is limited due to the ongoing shift away from coal in Europe.

Spot prices for LNG in Asia is trading at a consistent premium over the European benchmark for the rest of this year, signifying that competition for the fuel could tighten if Asian LNG demand rebounds. Competition for LNG is expected to be high with imports meeting 40% of Europe’s gas demand for 2023, up from 20% in 2021. If a very hot summer is seen in Asia then substantial levels of restocking demand could occur.

It was announced at the end of last week that the available capacity of a 1.4 GW subsea power cable connecting Britain and Norway will be halved for an unknown period of time due to a technical fault. Statnett, the Norwegian grid operator, said that power transmissions were disconnected completely on Thursday afternoon and the fault has resulted in repairs needing to be carried out.

Monday 5 June 2023

Overall last week:

The market remains strongly bearish and gas prices continue to fall. The EU announced a projection of low gas demand in 2023.

Bearish drivers (▼)

National Grid announced they are formally looking for supply partners to undertake extensive upgrades to the transmission and distribution network across Great Britain. They are planning to launch projects worth £4.5 billion. It is seen as highly important to ensure that upcoming renewable developments can deliver adequate energy to the places that it is needed.

Long term drivers in the gas market remain bearish, with strong storage injections and stock levels dampening price movement. EU gas storage is 68.9% full, improving at a rate of 0.3% per day over the last week. If this rate of addition continues storage could hit 90% as early as August.

Several positive news pieces on battery storage in the UK have emerged this week. Firstly, transmission-grid-connected 49.5 GWh project in Gloucestershire has reached financial close. Secondly, the government is considering making battery storage systems installed after solar VAT-free. Finally, two UK-based renewable developers have partnered to develop 500 MW of energy storage projects in the country.

Bullish drivers (▲)

Day ahead gas markets were driven up mid-week following an announcement that there has been a gas leak at Europe’s largest LNG export plant in Hammerfest, Norway, causing a full shutdown, with no details yet of a reopening time. Despite this plant only accounting for 5% of Norway’s total gas exports, processing up to 18.4 mcm/day, this has shown how sensitive energy markets remain with a relatively tight supply.

The UK’s grid operator, National Grid ESO, is reportedly paying upwards of £550 /MWh to dump excess power to interconnected countries such as Belgium and the Netherlands. Generally, generation cannot be simply turned off as the inertia of the generator is required to maintain grid operation and the issue will be exacerbated during periods of high renewable generation. These costs of export will feed into bills as non-commodity costs.

According to a poll conducted by Reuters, analysts expect that oil prices will creep up from current levels ($72.62 /bbl) due to OPEC+ maintaining restrictions on supply, however economic headwinds will keep levels below $90 /bbl. Average prices of $83.73 /bbl are forecasted for 2023.

Monday 29 May 2023

Overall last week:

The market remains strongly bearish and gas prices continue to fall. The EU announced a projection for reduced gas demand in 2023.

Bearish drivers (▼)

Gas prices fell due to a combination of the events: an announcement that EU gas demand is expected to fall by more than Russian imports in 2023; high inventory levels; and weak actual demand in the UK (thanks to the weather being warmer than usual for this time of year). Actual usage in Britain is approximately 10% lower than the previous forecast and the low demand is expected to continue for the next two of weeks, again associated with a warm weather outlook.

Ofgem announced that the price cap (on Standard Variable Tariffs) will be dropping c. 37% in July, from £3,280 to £2,074 for a typical household (though households had previously been capped at £2,500 by the Energy Price Guarantee); the cap will be made up of 30p/kWh for power, and 8p/kWh for gas.

SSE announced significant additional investment in renewables, totalling £40 bn over the next decade, with 80% occurring in Britain. Plans include the redevelopment of a 152.5 MW hydro plant into 25 GWh of pumped storage.

France’s nuclear capacity is expected to rise ahead of next Winter, with six offline reactors expected to return to operation sooner than scheduled, resulting in 5 – 10 GW of extra capacity compared to the same time in 2022.

Bullish drivers (▲)

The European Commission recommended that all EU nations end government energy subsidies by the end of this year following the falls in wholesale energy pricing. European nations have handed out billions in government support, at varying levels; Germany is forecast to have spent 2% of GDP supporting consumers, whilst Greece was much lower at 0.2%.

The unplanned outages affecting gas flows to the UK remain a risk for the DA markets. Norne gas field in Norway is still on an unplanned outage of 6.5 mcm/d. On Thursday NBP day ahead prices closed 4% higher at 67.10p/therm. The outage is expected to continue for only a few days.

Monday 22 May 2023

Overall last week:

Both the gas and power markets sustained notable falls. Winter 23 fell 3.1% for power and fell 7.1% for gas. For Summer 24, power fell 3.1% and gas fell 7.8%.

Bearish drivers (▼)

The British energy regulator, Ofgem, is seeking to speed up the rate at which new low-carbon energy schemes are connected to the electricity transmission grid. This is significant because currently around 20% of upcoming generation capacity is in a queue to wait up to ten years for grid connections, with over 40% of capacity (c. 120 GW) having a connection date beyond 2030.

Wind generation is expected to pick up for the remainder of the week, following lower than average output in the first half of this week of 2.5 GW – 4 GW. Output is expected to recover towards the seasonal norm (c. 7.5 GW) this weekend.

LNG flows to Great Britain remain strong, with nine cargoes due to be delivered before June 2. This, alongside strong inventories and an above-average temperature forecast, has meant that gas prices have approached 2-year lows.

Bullish drivers (▲)

Several planned outages are due to occur at UK nuclear power stations over the coming months. Five outages are expected across May and June resulting in a total capacity of up to approximately 3 GW being offline. The reactors will come back online over July, August and September.

The International Energy Agency has said that the recent downturn in oil prices cannot be expected to last. Late-2023 could see scarce supply and robust demand, which the IEA does not feel is priced into crude oil prices. It is expected that China will account for nearly 60% of demand growth in 2023.

It is expected that European Union countries will agree “sooner rather than later” to ban the import of Russian LNG. This emerged in an interview with the Spanish Energy Minister, where she also reported that a letter has been sent to major LNG operators in Spain asking them to avoid signing new contracts to buy Russian LNG.

Monday 16 May 2023

Overall last week:

Forward gas and power prices both fell last week, with a slide seen in near term contracts on Friday as gas for June 23 delivery fell 6.0%, and baseload power dropping.

Bearish drivers (▼)

National Grid ESO data shows that last month, the UK broke its record for solar generation, with a peak of 10,148 MW at midday on 20 April, supplying 28.6% of UK generation at this period, and pushing half hourly spot pricing below £40/MWh. This beat the previous generation record by 6%, which had been held since April 2021.

On Wednesday, 77 companies requested a purchase of a combined 11.6 bcm of gas through the EU’s joint procurement tender, AggregateEU, the first of such on this platform. Whilst it was expected that this tender would have over double the volume, 24 bcm, it is hoped that this attempt will be the first of many. Through this method, it is hoped that the EU will have more buying power, and will therefore be able to purchase gas more readily in the hope of avoiding another energy crunch.

Gas storage levels continue to tick up, currently at 63.32% (as per AGSI); LNG imports into the UK continue to remain robust, with nine shipments totalling 1.25 bcm in the next two weeks.

Bullish drivers (▲)

The G7 and EU are looking to ban any future piped Russian gas into Europe, a remarkable move just one year since European energy pricing spiked following Russia’s invasion of Ukraine. Whilst pipeline flows into the Bloc from Russia remain low, the move is set to block any future imports, for example from the opening of Nord Stream 2. This move should also provide confidence in investments in LNG facilities.

UK wind generation is forecast to drop below average (c. 7.5 GW) from Tuesday through to the end of the week, falling as low as 2.5 GW on Wednesday before recovering to 5.5 GW by Sunday. Lower wind speeds have helped to support spot pricing, with day ahead trading at £94/MWh, 10% above June’s forward price of £85/MWh.

Whilst EU gas storage levels are at almost record highs, injection levels have been far lower than in previous years, with the current 7-day average at 0.28% per day, much lower than at this time last year, partly down to Europe’s reluctance to overspend on gas. Whilst this rate may seem low, the average required injection rate needs to be 0.2% per day until 1 October 2023 to meet the mandated 90% level.

Tuesday 9 May 2023

Overall last week:

Forward curve pricing was relatively flat this week, with markets down by less than one percentage point for power and essentially flat for gas.

Bearish drivers (▼)

The UK’s first transmission grid connected solar farm powered up in the UK. It is expected to generate over 73,000 MWh annually, which is enough to power nearly 20,000 homes. On site will also be a 49.5/99MWh battery energy storage system that will be capable of balancing the intermittent nature of solar production. It will charge during times of peak solar production, and then export power back onto the grid when overall demand is high.

The gas storage outlook in Europe remains positive. The IEA states that the EU only needs half the storage injection that was needed last year, meaning that the EU is likely to reach its target of 90% storage levels before the 2023/24 heating season.

Ofgem has re-opened their review into Distribution Use of System (‘DUoS’) charges this week (after cancelling it due to the winter energy crisis) with the aim to ensure that these charges are consistent across the power network. It is hoped that changes will increase competition, make the charges more predictable for consumers, and reduce overall grid carbon emissions.

Bullish drivers (▲)

Norway’s Karsto field experienced unplanned outage last week, due to increased capacity above technical capacity. Moreover, it is still undergoing its annual maintenance, which will last until 12 May, reducing output by 19.5 mcm/day.

Wind power generation in the UK tailed off significantly towards the end of April and into early May. Early to mid-Spring is a surprisingly tight time for renewable generation in the UK, as sunshine hours tend not to rise until later in May and wind speeds are lower, leading to a larger gas-for-power demand, which in turn slows gas flows to storage.

In an International Energy Agency report this week, it was highlighted that global gas supplies are expected to remain tight for the rest of 2023. Major uncertainty lies in the level of future Russian pipeline gas supplies, LNG imports and the weather outlook. If Russian gas deliveries continue on their current trend, it is expected that gas deliveries to advanced European economies will drop by 45% compared to 2022 levels. This comes alongside a forecasted global increase in LNG supplies of only 4%.

Monday 1 May 2023

Overall last week:

The gas and power forward curves both traded essentially flat last week, with little news to animate markets, with the outlook for this week looking stable, with no strong drivers pushing action one way or the other.

Bearish drivers (▼)

The EU has opened up a scheme which will allow companies to jointly procure gas, with the goal being to build up storage levels to above the required level of 90% by November, mitigate any future supply shocks and prevent a repeat of record-high prices seen last Winter. The scheme cannot be used to buy Russian gas. It is hoped that plentiful LNG storage levels in the EU will reduce overall demand and feed through to prices in the UK, especially with existing gas pipelines.

The UK and the Netherland’s transmission system operators are planning on building an electricity interconnector through an offshore wind farm. The “LionLink” will have a capacity of 1.8GW and become operational around 2030. The UK currently has 7.4GW of interconnector capacity with the continent, 5.4GW of which has come online since 2019, and this year the Viking Link 1.4GW connection with Denmark will begin operations. LionLink highlights why these links are important; enormous and unpredictable renewable capacity is balanced best when not isolated to a single grid.

Despite many predictions that Europe would increase its coal burn through Winter 22 following the halt of Russian gas, nations in the bloc reduced consumption of the polluting fossil fuel 11% year on year, down by 27 TWh. This fall was driven largely by the overall drop in demand (c. 18%), along with an increase of renewable generation which provided 40% of total power through this period. Whilst overall coal demand fell, this was not true for all nations, with Italy’s usage increasing by a quarter.

Bullish drivers (▲)

Wind power generation in the UK tailed off significantly towards the end of April, and the forecast is also poor, with only Thursday and Friday this week meant to see a rise in wind-power output. Early to mid-Spring is a surprisingly tight time for renewable generation in the UK, as sunshine hours tend not to rise until May and wind speeds are lower, leading to a larger gas-for-power demand, which slows gas flows to storage.

The CEO of RWE, Germany’s largest utilities company, has stated that the European energy crisis is not yet over, despite the falls and relative stability in pricing. This echoed a statement released earlier this year by Gazprom, with both citing the fact that Europe experienced a mild Winter, helping to dampen demand, which may not occur again this year.

Whilst gas storage levels have remained high, injection has begun at a relatively low pace when compared to previous years. Since bottoming out on 22 March at c. 55.6% (as per AGSI), levels have increased 4%, an average rate of 0.1% per day. To reach the EU mandated 90% by 1 November, injection will need to average 0.16% until that point.

Monday 24 April 2023

Overall last week:

Forward pricing continued their downwards trajectory last week, falling back to the levels seen three weeks ago. Front season baseload power shed 3.0% week-on-week, with gas moving 2.6% in the same direction.

Bearish drivers (▼)

The EU managed to exceed its Winter demand reduction target of 15% from August ’22 to March ’23 – cutting by almost 18% in total. Malta was the only country that increased consumption, though its relatively small population of c. 0.5m people and therefore low usage meant that that this had minimal effect on total EU consumption; Finland recorded the largest drop, at 56%. Demand destruction was driven by three factors: high prices, mild weather, and governmental policy.

Gas storage injection levels continue to tick up, with ~1% added in the past seven days taking the total level to 57.6% (as per AGSI). Last year, storage levels was the principal driver through Summer with Europe rushing to fill inventories to the EU mandated 90% level by 1 November. However, at present it seems likely that this will not drive 2023 prices to those seen in 2022.

LNG cargoes are continuing to head towards the UK, despite falling gas prices. The UK is expecting 11 shipments in the next 10 days, totalling 1.9 bcm.

Oil prices have fallen over 5% in the last week, with Brent crude trading at c. $81/brl, after reaching $87/brl two weeks ago. The US, the world’s largest oil consumer, has seen gasoline demand fall compared to this time last year, stoking recession fears, whilst the threat of further interest rate hikes have also weighed on oil pricing.

Bullish drivers (▲)

UK wind generation is forecast to fall in the first half of w/c 24 April (Monday 12 GW, 8GW Tuesday, 2GW Wednesday and Thursday, rising back towards the seasonal norm (8.3 GW) at the weekend). This has provided some upward pressure on spot pricing, with both Tuesday and Wednesday trading above £100/MWh.

Planned maintenance at some of Norway’s larger gas assets have impacted flows, with levels expected to be 5-10% lower for w/c 24 April. Maintenance generally ramps up in Summer when European demand is lower.

European nations are mulling whether to cut imports of Russian LNG shipments (which are not currently subject to sanctions) as they look to move further away from taking Russian fossil fuels. LNG imports from Russia increased 39% last year in comparison to 2021 as Europe rushed to fill inventories in any way possible, with a total 22 bcm sent to the bloc.

Monday 17 April 2023

Overall last week:

Bullish movement in forward pricing last Monday was counteracted by marginal decreases through the remainder of the week, with prices closing on Friday at a similar level to those seven days prior.

Bearish drivers (▼)

National Grid ESO data shows that last Monday, the UK grid network broke the record for it’s lowest carbon intensity, at 33 gCO2/kWh. The UK experienced particularly strong winds, reaching 16.2 GW, helping to reduce gas for power generation down to 1.9 GW. For the UK to hit its clean growth strategy goals, it must get the average carbon intensity below 100 gCO2/kWh by 2030 and 50gCO2/kWh by 2050 – with 2022’s average at 182 gCO2/kWh.

Strong wind generation at the beginning of last week saw day ahead prices falling below £100/MWh from Monday to Wednesday with generation averaging 14 GW for delivery dates at these prices. Whilst generation fell below 3 GW over the weekend, it is forecast to pick up again this week to c. 10 GW for the remainder of the week.

Gas storage injection season is now well underway, with 10 consecutive days of inflows topping EU wide levels to 56.32% (as per AGSI). To reach the EU mandated 90% by 1 November, Europe will need to inject an average 0.17% per day.

Bullish drivers (▲)

The Gas Exporting Countries Forum (GECF) said last week that it expects global gas consumption to climb 1% year on year (after falling 0.43% in 2022), with growth driven by China and the US outweighing EU mandated demand reductions. Gas demand was dampened last year, as high prices decreased global industrial gas consumption by as much as 4%, an issue which is not expected to be as severe this year as prices have fallen back towards manageable levels.

Worries remain surrounding the energy picture this Summer in France; with strike action set to continue nuclear capacity may have to be revised down which will have a knock on effect on the nations’ ability to refill its gas storage inventories. France continues to have the lowest gas storage level (by %) of any EU nation at 28.9% as per AGSI, with the next lowest being Latvia at 35.28%, and well below Germany’s 64.60%.

Oil prices continue to remain at elevated levels to a fortnight ago following an unexpected announcement a week ago by OPEC+ that it will be cutting production by a further 1.16 million bpd – driving fears in the market that there will be shortages through the second half of 2023. This move seemed to trigger bullish movement in gas and power markets at the beginning of last week, showing that there is still strong sensitivity in energy markets.

Monday 3 April 2023

Overall last week:

Overall this week: Forward gas and power pricing remained largely flat through last week until a notable spike pm Friday, as fears of OPEC+ oil cuts eroded confidence in energy markets.

Bearish drivers (▼)

Gas storage levels remain highly elevated for this time of year, hovering around 55.6% as per AGSI, which has offset drivers such as outages at French LNG terminals, and the colder weather forecast. Coupled with these bullish drivers, gas prices have remained relatively flat over the course of the week.

The Dutch electric grid company TenneT awarded €25 billion worth of contracts to build connecting systems for wind farms in the North Sea. Support such as this will assist in further deployment of wind, supressing prices in the long term. This comes alongside other North Sea developments, with Scottish Power signing a £1.3 billion contract to build a 1.3 GW wind farm off the Norfolk coast.

Thermal coal demand has hit multi-month highs in Asia, and with much of their generation coming from coal. The hope is that this will ease Asian demand for LNG and supress prices in the UK.

Bullish drivers (▲)

A reduction in gas price seen in the mid-part of last week has been erased by cold weather forecasts and expectation of higher Chinese demand. This has meant that prices were virtually flat all week.

Wind output in Britain and north-west Europe rose in the latter half of last week but will decline through this week. It is expected that this will provide some upward pressure on spot pricing.

The UK Government set out its energy plans last Thursday, leading to criticism about the lack of green subsidy made available. This will exacerbate concerns that renewable generation in the UK will become less competitive than the United States, which has implemented the Inflation Reduction Act.

With Russian deliveries of LNG to Europe increasing over the last year, EU ministers have proposed measures to stop the import of Russian LNG to Europe by blocking them from bidding for infrastructure capacity that enables them to offload the gas at terminals.

Monday 27 March 2023

Overall last week:

Forward gas and power pricing saw losses last week as the gas storage injection season begins, following warmer temperatures and increased wind output across the continent.

Bearish drivers (▼)

The last 10 days have seen the beginnings of the European storage injection season, with increases in stored natural gas increasing every day since last Wednesday. With levels currently at ~56.04% (as per AGSI), there will be much less concern than was previously feared for European nations to refill to the mandated 90% level by 1 November, which is also likely to come at a fraction of last year’s cost.

Oil prices fell last week as the US Federal Reserve increased its interest rate by a further 0.25%, despite the banking crisis, to 4.75% – 5%. Oil is currently trading at ~$75/brl, despite many predicting rises in the first half of the year as China’s economy reopens.

Commodity markets have been impacted by the collapse of Silicon Valley Bank. With the biggest bail out since the 2008 financial crisis, consumer confidence has been affected, which is likely to drive down demand.

Bullish drivers (▲)

Strikes in France, as a response to Macron’s attempts to raise the pension age from 62 to 64 have impacted both LNG import capacity and nuclear power output. The Dunkirk LNG terminal was blocked again on Thursday as workers voted on further strikes. French gas storage levels are also the lowest of any EU nation at 28.57%, meaning that France may again be relying on imports this Summer as it looks to refill its inventories if LNG capacity remains down.

Cooler temperatures have applied some upward pressure to short term forward pricing, with temperatures in the UK and on the continent set to be ~2C below average at the beginning of April.

Germany’s energy watchdog, Bundesnetzagentur, has warned that the energy crisis is far from over, and that the country could face a crunch again this Winter if further demand cuts are not met. A principal driver in demand destruction through Winter 22 was the shutting down of some of Germany’s energy intensive companies as prices soared and became unsustainable; with prices continuing to fall to much lower levels than Winter 22 levels, there is fear that demand may pick up again.

Monday 20 March 2023

Overall last week:

Prices have fallen back to the levels seen the week before last, as fears of nuclear supply disruptions have abated.

Bearish drivers (▼)

Mild and windy forecasts have eased demand from both the power and gas sector. This in turn is allowing storage levels to remain strong (c. 56%), further reducing price. In addition to this, LNG flows to the UK remain higher than levels seen at this time of year from 2020-2022.

Wider commodity prices have been driven down by the fallout from the failure of Silicon Valley Bank and interest rate rises. This saw oil prices fall below $70 /bbl for the first time since December 2021.

Centrica has announced plans to extend the life of two nuclear power stations in the UK.

The EU has vowed to overhaul the electricity markets after record prices last year. The aim will be to make consumers less exposed to short term changes in prices by locking countries into long-term electricity prices. Generally, they will do this through the integration of renewables and clean flexible technologies, alongside the utilisation of short-term power markets to enable such integration of renewables.

Bullish drivers (▲)

Ongoing issues with French power supply (namely maintenance, engineering and strikes at several generation sites), and weather associated LNG import delays, have supported prices. EDF is also due to inspect more pipe welds for cracks, however they expect to maintain its 2023 nuclear production forecasts.

IFA1 (the interconnector between France and the UK) had an unplanned outage of 500 MW from March 12 – March 19.

The UK’s current Contracts for Difference subsidy scheme is stalling development of offshore wind assets, with low strike prices at previous auctions reducing the commercial viability of such developments. With the potential for less future generation capacity, supply could be limited.

Equinor has warned that European prices for gas could rise to “very high” levels next Winter in the case of cold weather and a rebound in Chinese energy demand.

Monday 13 March 2023

Overall last week:

Forward prices climbed through the second half of the week as temperatures fell and gas storage withdrawal levels increased.

Bearish drivers (▼)

Forecasts are suggesting a pick-up in wind speeds next week, which is likely to provide some downward pressure in spot prices. The UK has been experiencing some slow wind recently, between 5,000 MWh/h and 9,000 MWh/h in the past week, though this is forecast to increase to up to 18,000 MWh/h early next week.

Despite recent cold weather, gas storage levels still remain strong at 57.54%, and with milder weather around the corner for Europe withdrawal rates may slow. Markets are showing belief that there will be enough gas this Summer to refill to EU mandated target levels as gas for Summer 23 continues to trade lower than Summer 24.

Despite fears of rebounding Chinese LNG demand affecting Europe-bound cargoes, shipments into the continent remain strong. Eight cargoes are expected to reach the UK in the next eight days, totalling 1.3 bcm, with six of these from the US and the remaining two from Ghana and Nigeria.

Bullish drivers (▲)

A cold snap last week halted the fall in forward pricing, providing some upward pressure through the second half of the week. This cold front has led to increases in gas storage, notably 0.77% on Tuesday, increasing the risk in supplies for Summer 23, where this will need to be refilled, and Winter 23, where we may have lower storage than was forecast prior to this.

French nuclear capacity has remained impacted from strike action, with President Macron planning to go ahead with reforms to raise France’s minimum retirement age to 64 from 62. After hitting a 47 GW peak in February, capacity is now at 39 GW, though it is forecast to increase to 42 GW by the end of March.

The UK was required to use coal fired power stations on Tuesday afternoon for the first time this Winter, as the UK experienced low wind speeds, dampening supply, and sub-zero temperatures, the lowest this year, spurring demand. Whilst the coal plants had been put on standby and warmed up earlier in Winter, this was the first time they were needed by National Grid.

Monday 6 March 2023

Overall last week:

Energy markets continue to fall, though a cold snap during the next seven days could provide some upward pressure on spot and forward pricing.

Bearish drivers (▼)

Following an extended period of above average temperatures, gas storage has remained above 60% moving into March, currently at 61.06% as per AGSI. Whilst generally energy markets follow a backwardation pattern, high gas storage levels mean that gas for Summer 23 is currently lower than Summer 24.

LNG flows into the UK remain robust, despite the fear of a rebound of Chinese demand. Eight tankers are expected to arrive on Britain’s shores in the next seven days, totalling 1.34 bcm, with further shipments expected in Belgium.

Bullish drivers (▲)

Upcoming cold weather is likely to provide some upward pressure on energy pricing. Temperatures have been gradually declining over the last few days, and this week the UK is expected to see a cold spell with night-time temperatures dipping below 0°C. The bullish concern is that this will increase the gas storage withdrawal rate, leading to a higher amount of gas to be procured during the injection season to refill stocks ahead of W-23.

Outages at French nuclear plants have led to a drop in available capacity, from 47 GW in early February to ~40 GW. With last year seeing capacity drop as low as 25 GW, there are worries that the French grid could be plagued with fresh outages whilst Europe tries to fill up its gas storage inventories.

Chinese LNG demand remains the biggest unknown in energy markets this year, with IEA analysis showing an uncertainty range of 40 bcm (420 TWh) for 2023. A pick-up of Chinese demand would drive prices in Europe as the continent looks to stay away from Russian gas.

Monday 27 February 2023

Overall last week:

Forward contract prices saw marginal gains at the end of last week as temperatures fall below seasonal average, though movement has been limited by strong European gas storage levels.

Bearish drivers (▼)

The rate of gas storage withdrawal in Europe slowed coming into last week, averaging 0.265% from Monday to Saturday (as per AGSI). With stores at 62.45% as of Saturday, they remain close to the 5-year high, and are unlikely to fall below 50% by the start of injection season.

Freeport LNG has received regulatory approval to resume operations of its June 2022 explosion-hit Texas facility. For the three liquefaction ‘trains’ at the site, this means one can produce at full throttle, another can ramp up incrementally but the last will need further and final approval for operations to recommence. The return of Freeport is crucial in a year when little other new LNG supply is coming available, but competition is becoming more intense. The next new facility to complete is likely to be Golden Pass LNG in Texas in 2024, which will increase US export capacity by 18%.

Bullish drivers (▲)

Benchmark EU carbon allowances closed above €100/tCO2 for the first-time last week, as long-term trends in free allowance cuts were bolstered by expectations of higher than forecast industrial activity this year and increased demand from generators. UK allowances have closely tracked moves in EUAs since the start of the year and are trading at a similar level, although they remain 19% below record highs.

Following on from reports that the Kremlin is planning on cuts to oil exports by up to 25% from its western ports, this weekend has seen Russia cease pipeline oil flows into Poland via the Druzhba pipeline, citing payment issues, though this came one day after Leopard tanks arrived in Ukraine from Poland. Despite this, oil markets have increased marginally, with Russia’s ability to manipulate market prices seemingly reduced from last year.

Other news

Australian group Recharge Industries has completed the takeover of the collapsed UK battery technology company, Britishvolt. Following months of uncertainty, Britishvolt went into administration in January 2023, despite efforts to cut costs (including salary reductions) and secure orders. The site is now reported to be being developed for building larger scale battery energy storage systems, citing a greater commercial viability than electric vehicle (EV) batteries, denting the government’s plans of creating a homegrown EV industry with its first gigafactory. As part of the deal, Recharge Industries will hire 26 current employees, whilst purchasing Britishvolt’s prototype battery technology.

Monday 20 February 2023

Overall last week:

Forward pricing has remained largely stable this week as gas storage levels remain strong.

Bearish drivers (▼)

Following two weeks of cooler weather in late January/ early February, increases in temperatures have slowed the gas storage withdrawal rate, to 0.4%-0.5% daily. Gas storage remains at 65.22% as per AGSI, near the 5 year high.

LNG flows into the UK continue to remain fairly strong, though not at the levels seen in Q4 2022. 8 shipments are due on Britain’s shores in the next 8 days, totalling 1.421 bcm.

Bullish drivers (▲)

The weather outlook for the last two weeks of February was revised downwards yesterday, as temperatures are set to be a couple of degrees below seasonal norms. Should temperatures drop, gas storage withdrawals will likely increase due to the increased heating demand.

Brent Crude prices have seen a 7% increase in the last two weeks, albeit remaining fairly stable in the last seven days. This followed the Kremlin’s announcement that it would be cutting output by 500,000 bpd, and sentiment that demand will likely increase this year as countries have avoided hitting a recession.

Monday 13 February 2023

Overall last week:

Forward prices fell this week as the mid-term weather forecast suggests that temperatures will remain above seasonal norms.

Bearish drivers (▼)

Whilst gas storage withdrawals have picked up since mid January, averaging ~0.6%/day, the current level still remains well above the previous 5-year average for this time of year. As per AGSI, storage was at 68.82% as of Tuesday – with warmer weather forecast for the next two weeks it is likely that stores will remain above 50% come the beginning of injection season.

Although LNG flows into the UK have fallen since the end of 2022, there still remains a strong supply, with 9 cargoes expected between this Wednesday and next weekend, totalling 1.3 bcm. As prices of gas has dropped, this has increased competition with Asian nations.

Bullish drivers (▲)

Competition for LNG is set to increase this year, as Europe looks to continue to replace Russian gas, whilst China’s economy is looking to rebound from its strict zero-Covid policy. Demand is likely to outpace supply, with new facilities expected to take four years until completion.

Cold through the early parts of this week provided some upward pressure on spot power pricing, with National Grid instructing one of three standby coal power plants to warm up on Monday, which was later stood down. As temperatures dropped to as low as -8℃, this highlighted the restraints from a lack of UK gas storage.

Monday 6 February 2023

Overall last week:

Markets bounced back as mid-term temperature forecasts were revised down by 1-2℃.

Bearish drivers (▼)

Despite the increase in gas withdrawal rates, EU gas storage still remains above 72% as of Tuesday. Warmer than average temperatures for most of December and January helped tame heating demand, reducing the need for storage refill in Summer.

The revival of Freeport LNG, the US’s largest LNG processing plant normally responsible for 20% of exports, continues as it has now asked US regulators for approval to introduce flows of gas into one of its units. Once the plant is restarted, it is expected to take 60 days before it is operating at full capacity – at which point it is able to liquify up to 59 mcm of gas daily.

LNG cargoes destined for the UK and the EU are set to remain strong for the next two weeks. The UK is expecting 9 cargoes up to 14 February, totalling 1.47bcm (14 TWh), and Belgium, the Netherlands and Germany due to receive a further 18 shipments of 2.96 bcm (29 TWh).

Bullish drivers (▲)

Recent revisions in mid-term weather outlooks have provided some upward pressure on forward gas and power markets. Whilst February had previously been expected to be mild, forecast temperatures have been dropped by 1-2℃, which will increase demand through Europe, sapping gas storage. This is likely to drive up prices of Summer 23 (more storage to fill) and Winter 23 (potentially lower stores following on from this Winter).

Carbon prices have had significant bullish momentum through January, with EUAs currently trading at €95/tCO2 – a 23% rise in two weeks. Falling gas prices have supressed demand destruction, leading to higher usage.

French nuclear power output remains below averages for previous years, with maintenance and strikes continuing to hit the plants. Power generation was 23% lower in 2022 compared to 2021, with output for 2023 17.5% below the average from 2019 to 2021. The drop in output has required France to draw on interconnector imports and gas storage (currently 64.3%).

Monday 30 January 2023

Overall last week:

Forward energy prices fell again through last week, with Summer 23 gas and power closing 17.6% and 12.7% down respectively.

Bearish drivers (▼)

Gas storage levels remain well above the average for this time of year, at 73.82% as per ASGI on Saturday. Whilst withdrawal levels increased through the last couple of weeks due to falling temperatures, a prolonged mild spell through December allowed storage levels to remain topped up.

LNG flows into the UK continue to remain strong, with 12 cargoes expected from last Friday up to this Sunday, totalling 12.6 TWh or about four day’s worth of current cold-spell national gas demand. The small resumption of flows into the fire damaged Freeport LNG processing plant, which is now just waiting on regulatory approval, has provided further optimism for supply security into the UK and Europe, helping to provide some downward pressure on Summer 23 gas and power contracts.

Following on from the recent cold spell in the UK, temperatures are forecast to return to seasonal norms for the next two weeks, likely dampening demand.

Bullish drivers (▲)

Last week saw the UK enact it’s Demand Flexibility Service (DFS) on Monday (5-6pm) and Tuesday (4.30-6pm), saving around 470MW of capacity and wind output fell and temperatures dropped, narrowing the gap between supply and demand. This was the first time that the DFS has been activated, though tests in early December did also coincide with cold spells when the system would likely have been activated anyway.

French nuclear output has hovered at 72% of capacity since the start of 2023, despite EDF’s hopes that availability would be closer to 90% by now. The ongoing atomic malaise has forced France to rely on gas, resulting in the largest drawdown on national storage of all EU countries, with its facilities falling to 70% capacity on Wednesday (down from >99% in November). France alone has accounted for 20% of EU storage withdrawals, matching more populous gas-dependent Germany in its rate of consumption – possibly due to France’s heavy energy subsidies.

Monday 23 January 2023

Overall last week:

Forward energy prices recorded another weekly loss despite a slight recovery through Tuesday and Wednesday.

Bearish drivers (▼)

European gas storage levels remain robust, still above 80% capacity. A strong supply of LNG has coincided with mild and windy weather conditions during the first half of the month, with a further 10 cargoes set to arrive in the UK by 28 January.

The mid-range weather forecasts suggest no cold snaps in February, easing some fear for the potential of another cold snap and boosting confidence in gas storage levels, which now look set to remain above 50% come the end of the Winter season.

Increasing Covid-19 cases in China outweigh prospects of higher LNG demand as a result of increasing travel due to both the Lunar New Year and China re-opening its borders. Questions remain about whether Europe will receive as much LNG this year with the JKM price much more competitive to TTF than the second half of 2022, when Asian nations chose not to pay the premium on gas prices.

Bullish drivers (▲)

Temperatures in the week dropped to below seasonal norms after a spell of milder-than-average conditions. These conditions have accelerated the gas storage withdrawal rate, increasing from <0.15% to >0.45% for the first half of the week.

The long-awaited restart of Freeport LNG may be another few weeks away, as several sources were quoted last week that the expected start is to be pushed back into February due to delays in regulatory approval.

Strikes in France against pension reform have decreased France’s nuclear output, falling by ~12% on Wednesday, with union bosses expecting further industrial action with no clear sight of a resolution. This increased imports to the French grid from the UK, Belgium, Germany, Switzerland and Spain, providing some upward pressure on spot markets.

Monday 16 January 2023

Overall last week:

Gas and power markets continued to fall last week as EU gas storage levels remain above 81%.

Bearish drivers (▼)

European gas storage has remained at healthy levels, despite industry reopening after the Christmas holiday period. Inventories currently sit at 82.59%, a 0.82% drop to seven days prior, averaging a withdrawal rate of 0.12% per day.

LNG cargoes into the UK are set to remain strong for the next week, with 14 tankers totalling 2.372 mcm set for arrival to the British Isles from 12 – 19 January. Deliveries beyond these dates may slow however, as the European benchmark price, TTF, drops below the Asia JKM, which is likely to divert shipping towards the Pacific.

Strong demand destruction and higher renewable generation than expected since mid December have led to a drop in coal burn. This has reduced the emission of harmful greenhouse gasses, which has provided downward pressure on EUAs and UKAs, with the latter trading at £67.10/tCO2, down from £84.93/tCO2 in early December.

Bullish drivers (▲)

Freeport LNG, the top US LNG export plant, has been hit with further delays to its reopening following the fire causing its shutdown seven months ago. Whilst the plant itself is ready to resume operations, regulatory approvals are not likely to be completed until February, though officials at the plant have said that they are still aiming for a January restart.

Temperatures in the UK and across the continent are forecast to drop below seasonal norms through next week from Sunday, which will provide upwards pressure on spot pricing as heating demand increases. Whilst forward pricing for Friday, Saturday and Sunday remains around the £100/MWh for baseload power, Monday and Tuesday are both above £250/MWh.

The price of oil has rebounded from its unexpected fall in the first week of the year, with a 6% weekly rise to ~$85/brl. Oil markets have been buoyed by a pick up in Chinese demand following on from the easing of Covid restrictions, and a fall in the value of the dollar.

Energy Bill Discount Scheme

Earlier this week the UK government released details of its follow on from the EBRS – the Energy Bill Discount Scheme (EBDS). The support provided by the EBDS is an 85% reduction in comparison to its predecessor: £5.5bn pa (April 2023 to March 2024) compared to £18.4bn for the six months of Winter 22. The scheme provides a basic level of support to all businesses provided they have a contract with a licensed supplier, but also gives a much higher level of aid to Energy and Trade Intensive Industries (ETII).

For all UK businesses, the following discounts will apply:

• Power: £19.61/MWh with a price threshold of £302/MWh
• Gas: £6.97/MWh (20.42p/therm) with a price threshold of £107/MWh (313.59p/therm)
• Once the threshold is hit, the discount will be applied to reduce the cost of energy back to the threshold value, upto the maximum discount levels outlined above

For Energy and Trade Intensive Industries (ETII):

• Power: £89/MWh with a price threshold of £185/MWh
• Gas: £40/MWh (117.22p/therm) with a price threshold of £99/MWh (290.14p/therm)
• This will be applied with the same methodology as the lower discount for all other businesses – the discount will only apply above the threshold to rebase the price back to the threshold value

A full list of eligible industries can be found here.

For a sector to qualify for the ETII list, it must be above the 80th percentile for energy intensity and be above the 60th percentile for trade intensity

Monday 9 January 2023

Overall last week:

Gas and power markets fell sharply last week as storage levels remain high through December and early January. There are numerous bearish and few bullish drivers, substantiating the drop in price.

Drivers:

Gas storage remains strong in Europe, with an unprecedented increase in storage levels over the Christmas period, as industrial demand dwindled and weather across Europe stayed above seasonal norms. Storage is currently at 83.41%, still higher than 82.91% seen on 23 December ▼

Without a cold snap on the horizon, and with reasonable renewable generation forecast for the next two weeks, spot prices should remain dampened and far below the final price for securing Winter 22, £477.80/MWh. The aforementioned conditions should also help to tame prices in the midterm, as Europe will not be required to draw on too much of its gas storage, leaving less to refill through the Summer ▼

The UK continues to have a strong supply of LNG, with 15.4 TWh arriving via 14 cargoes in the next week, which is the equivalent of seven days of demand. This will help apply further downward pressure on spot prices, with UK baseload power day ahead (Friday delivery) trading at £107.50/MWh ▼

Oil markets continue to trend downwards as the world’s two largest consumers have a weak economic outlook: the US with high inflation and China still feeling the after effects of its zero Covid policy ▼

Energy support

Business

• The current 6-month Energy Bill Relief Scheme is set to be continued past 31 March, but at a lower level
• The government estimates that the cost for the current six-months of support is ~£18.4bn, a figure that the treasury describes as ‘unsustainably expensive’
• Further details of the scheme are due to be released in the next week – the level of support is expected to be at least halved, but is being provided to stop businesses from facing a sharp increase back to undiscounted prices

Domestic

• Following on from a substantial price drop of the wholesale cost of energy in the latter parts of December, energy price cap predictions have now been revised
• The government will keep in place the Energy Price Guarantee (EPG) which is due to increase from £2,500/yr to £3,000/yr in April 2023, until March 2024
• Cornwall Insight estimates that Summer will be capped at £2,800/yr, with Winter 23 at £2,835/yr