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

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