Energy markets update: With high levels of volatility in the energy markets due to the conflict in Ukraine, we are giving daily updates:
Date: Thursday, 29 September 2022
In its last day of trading Winter ’22 baseload jumped 7% to close at £624/MWh. This was part of a broader and ongoing rally which has seen Summer ’23 pricing once again narrow the spread to Winter ’23 to just 4%, down from 13% two-weeks ago. A narrow Summer-Winter spread reflects concerns of a tight gas market putting pressure on gas storage fill, as occurred in 2021 and 2022. Meanwhile, day-ahead baseload has dived from £285/MWh yesterday to £185/MWh this morning.
API2 front-year coal is trading 19% lower than it’s $342/t record-high earlier this month. This is despite August’s enforcement of an EU-wide ban on imports of Russian coal. Prices have slipped in part thanks to an increase in volumes of Kazakhstani coal exported to Europe – supplies which typically head east. These cargoes flow through Russian ports, however, and so remain vulnerable. A major slump in carbon markets has also aided the decline in coal.
European countries are being hamstrung in their pursuit of alternative gas supplies by a fixation on spot-market procurement. As European leaders do the rounds in petro-states, including Draghi’s April tour of Africa and more recently Scholz’s sojourn in the Gulf, their hosts are repeatedly perplexed by the desperate need for supply contradicted by an unwillingness to sign long-term contracts. Both Draghi and Scholz left largely empty-handed. The result for this winter will be limited additional LNG cargoes, as just 37% is sold on spot and most of that is already heading for Europe.
Date: Wednesday, 28 September 2022
The largest movers yesterday were 2023 baseload seasons, which saw gains of over 9%. The Nord Stream leaks, apparently the result of sabotage, have narrowed the chance of Russian exports through those pipelines resuming (in the unlikely event of a rapprochement). On the front end, Norwegian flows have now nearly returned to normal levels after a month of heavy maintenance, with exit nominations of 3,100GWh/d (~90% of peak capacity). Flows in October and November are expected to average ca. 3,300GWh/d.
The spread between spot NBP and TTF rocketed on Tuesday, reaching €133 at close. This was partly driven by an 8% jump in TTF, the result of anxiety over the Nord Stream leaks. The short-term political impacts of these are currently unknown, but they will not affect European gas supply this winter as flows had already stopped. Gas storage in Europe is at 88%, and in the coming month it will edge over 90% – but not much further as cooler weather strikes.
The European Parliament has agreed to ‘frontload’ EU carbon markets, which involves flooding the market with allowances to drive the price down. The EU carbon market is responsible for around 10% of the rise in electricity markets. Starting from May next year, additional allowances (drawn from member states’ auctioning shares) will continue to be sold until €20bn has been raised, which would be used to fund plans to move away from Russian energy.
Date: Tuesday, 27 September 2022
UK power futures were static yesterday as markets digested FX chaos. Winter ’22 NBP gas was 6.5% lower following a slide in TTF. Just a couple of trading days remain on that contract. Day-ahead baseload is relatively low, trading at £209/MWh this morning – largely thanks to the windiest period in nearly two months.
A group of 13 EU members are pushing for a gas price cap to be proposed by the European Commission for discussion amongst EU energy ministers at their meeting on Friday. Supporters are as diverse as Belgium, Poland and Italy, although the Netherlands, Germany and Denmark remain staunchly opposed. They fear a price cap could reduce Europe’s attractiveness for LNG shipments, which currently constitute a third of gas supply. Other key proposals tabled include a revenue cap for non-gas generators, a fossil-fuel company windfall tax and mandatory electricity rationing.
The Baltic Pipe, a pipeline connecting Norwegian gas fields in the North Sea to Poland, will be inaugurated today. On September 23rd, Norway’s Equinor and Poland’s PGNiG agreed a 10-year supply deal which would deliver 25TWh/yr – allocating nearly a quarter of the pipeline’s 105 TWh annual capacity. Partial service will begin in October, with full capacity expected for January 1st at which point Norwegian flows will replace 60% of Poland’s pre-war Russian gas imports.
Date: Monday, 26 September 2022
For a cold week in September, day-ahead power is trading low compared to prices seen in August. After closing at £215/MWh on Friday, day-ahead baseload opened lower at £195/MWh this morning. Front-month UK NBP gas was trading at the equivalent of €93/MWh this morning, just 54% the level of the equivalent TTF (Continental benchmark) contract. Sustained high TTF prices mean it is maintaining a €48/MWh spread on JKM landed LNG prices, which bodes well for LNG supplies to Europe.
As the pound approaches parity with the dollar, it seems likely that the Bank of England will have to convene an emergency meeting in October to raise interest rates further. With American LNG possibly setting the marginal price for UK gas this winter, the 17% depreciation of the pound against the dollar since April will raise the absolute cost of spot cargoes.
The European Securities and Markets Authority (ESMA) has suggested that it may loosen the definition of what qualifies as collateral to help energy firms cover positions. The change would be limited to the volatile winter period. It also said it was considering a new type of trading-halt mechanism, as rules on circuit-breakers already in place were not preventing prices from racing higher. However, this would be introduced amongst a broader EU package of emergency measures to tackle the energy crisis in January.
Date: Friday, 23 September 2022
Winter ’22 baseload rose steeply yesterday, closing nearly £50/MWh up at £554/MWh. Moves on Summer ’23 were much smaller and it remains around the £340/MWh level. Day ahead power is down at £230/MWh, and it has averaged £292/MWh this month. Front-month power is trading 7% higher at £304/MWh.
The Chancellor is laying out a mini-budget this morning. It will include more details of how energy-subsidies will be funded. Amongst the measures announced is emergency liquidity for energy traders to help utilities cover margin-calls, helping to ensure security of supply. The policy decisions in the mini-budget are costed at £100bn, which has caused a further sharp dive in the value of the pound this morning – increasing the expense of imported gas supplies.
After nationalising Uniper yesterday, Germany may also bring gas importer Sefe under state-control. Previously Gazprom Germania, Sefe has been under federal trusteeship since April, and once owned and operated pipelines and storage facilities in Germany. By acquiring 99% of Uniper, the German government hopes to continue securing alternative gas supplies by providing improved credit and public cash for what could be a touch-and-go Winter for gas supplies.
Date: Thursday, 22 September 2022
Winter ’22 climbed again yesterday, closing 3% up at £507/MWh. Moves were muted further along the forward curve in both NBP gas and power. Front-month power continued to oscillate, returning to Monday’s £280/MWh level. Only API2 coal remains near record high levels of $312/t as switching demand remains robust and August’s EU ban on Russian supply takes hold.
While EU member states have collectively allocated €314bn in energy support, Britain alone has earmarked €178bn. In the EU, energy support has gone hand-in-hand with campaigns to reduce consumption, while the UK government has no such plans. A £211/MWh cost cap for the private sector has returned power prices to levels where businesses can continue as usual. Markets expect this raises the risk of uncontrolled consumption just when supplies are most strained, and the pound has been hammered as a result, trading at just $1.13/£.
Even as strikes reduce French nuclear output, President Macron continues to insist that France will be able to make it through Winter without power rationing. Forecasts for increases in French nuclear generation have had to be repeatedly revised, with current output hovering around 28GW, around 47% below the peak of 53GW expected for December this year. Strikes have caused 1.7GW of supply reduction, pushing France’s net power imports to as high as 8GW this morning – an enormous turnaround in comparison to 11GW of exports on the same date last year.
Date: Wednesday, 21 September 2022
Markets were higher yesterday as Putin appeared to be escalating the war in Ukraine by announcing a partial mobilisation. Winter ’22 baseload closed 7% up at £493/MWh, and 2023 seasons were 5% higher. Front-month UK gas and power also up over 9% this morning, with baseload for October delivery trading at £307/MWh. Day-ahead baseload remains steadily below £300/MWh, trading at £262/MWh this morning.
The government has announced some details of the support for business, known as the Energy Bill Relief Scheme. Here’s what we know:
- The government has set an expected “Supported Wholesale Price” (SWP) for electricity and gas at £211/MWh and £75/MWh respectively. On 30 September final confirmation of the SWP levels will be published.
- Businesses will receive a discount on their bills, up to a maximum, of the difference between the Supported Wholesale Price and the average expected wholesale price for the 01/10/22-31/03/23 period (i.e Winter Period). This “Maximum Discount” is expected to be £405/MWh for electricity and £115/MWh for gas.
- The level of reduction will be determined by the supplier using the methodology above.
- There will be a review of the scheme in December 22. According to the Business Secretary this review will focus on whether the scheme can be “less broad brush and more targeted to where support is needed the most”.
- The energy support scheme will apply to fixed price contracts, default or deemed tariffs, and flexible customers. The interpretation of how much support each customer gets is down to the supplier depending on contract type.
- We do not know whether the scheme will be extended beyond March 23, but the Business Secretary has implied it.
Date: Tuesday, 20 September 2022
After a bullish run through the middle of last week, UK forward seasons have largely circled back to where they were trading at, or slightly below, 7 days ago. UK baseload Winter ’22 fell 6% over the weekend to close at £460/MWh yesterday, the lowest level since 22nd July this year.
EU gas storage levels continue to tick up, currently at a healthy 86% Europe-wide. Over the weekend, Germany hit the milestone 90%, well above its 1st October target of 85%, cooling fears of Winter gas shortages in Europe’s largest economy. Further to this, the German government is now pressing to secure LNG contracts with Gulf producers to supply new regasification terminals currently under construction, helping to plug the gap left by Nord Stream 1’s closure.
It is widely expected that the UK government will make an announcement today regarding the UK business energy support package. Since the initial announcement on 8th September, information surrounding the exact details of the package have been few and far between, though it is now understood that the exact mechanism of this support will not be finalised until the end of October/start of November, with bills likely to be backdated to the start of the Winter season. The initial announcement suggested a similar level of support to the domestic cap – fully delivered prices of £350/MWh for power and 284p/therm for gas.
Date: Friday, 16 September 2022
UK baseload forward seasons were looking for direction yesterday as the excitement of the last fortnight eased. With no decision on interventions expected by the EU for weeks and UK government plans delayed until November, the regulatory driver has temporarily run out of steam. Instead, focus may now shift back to supply fundamentals; EU gas storage will hit 85% tomorrow, but the rate of injection has dropped. Additions were 12% lower in the last seven days compared to the previous seven day period, and a cold snap starting today is likely to worsen the situation.
Limited interconnection capacity between France and Spain has helped to dampen Iberian gas prices this year. The gas system operators of both countries are working to raise interconnector capacity to increase supply to Northern Europe from Iberia’s numerous LNG terminals. Currently the two trans-Pyrenean pipelines carry around 75 TWh per year, which could be increased to 90 TWh. Additionally, shelved proposals for a third pipeline – “Midcat” – have been revived, despite opposition from France and particularly its nuclear lobby, which sees natural gas as a competitive threat.
After a meeting with gas producers, Norwegian PM Støre said on Thursday that the “extraordinary gas price spikes” were not in his country’s interest. Norwegian gas production may set a new record this year, piping as much as 1,300 TWh to European customers. Equinor, Norway’s state controlled petroleum company and the country’s largest gas producer, sells around half its volumes on spot markets. Commenting after the talks, the company indicated it was open to selling more via bilateral contracts – although European utilities may need state-backing to improve their credit-worthiness.
Date: Thursday, 15 September 2022
UK Winter ’22 baseload jumped 9% yesterday, closing more than £40/MWh up at £537/MWh. This may have been a reaction to suggestions that details of government plans to support businesses with their energy costs will be delayed until November. Front-month baseload also jumped on the news, up 10% to close at £379/MWh. Day-ahead is lower this morning, however, trading at £290/MWh.
The European Commission is aiming to raise €140bn to ease the EU’s energy crisis through a series of windfall taxes. The Commission’s proposals must still be negotiated by member states before final laws are agreed, expected at the start of October. Key proposals include a €180/MWh price cap for non-gas generators and a solidarity contribution from the fossil fuel sector. The Commission’s President Ursula Von der Leyen said that it was also working on a “more representative benchmark” for gas markets than the Dutch TTF hub, and a mandatory cut of 5% of peak power consumption.
Asian LNG buyers have ramped up purchases of fuel oil to plug the gap for Winter power generation left by a low Summer LNG imports. European imports in June, July and August were 187% of last year’s volumes, totalling 400 TWh. This is higher than typical peak LNG imports for Winter, and exceeded Norwegian exports over the same period, which totalled around 300 TWh. France, in the midst of a nuclear capacity crunch, was the largest importer – exceeding even Spain, historically number one. European gas prices continue to outpace JKM, setting favourable conditions for European LNG imports going into Autumn.
Date: Wednesday, 14 September 2022
Winter ’22 baseload halted a week of falls with a 4.2% gain to close at £494/MWh yesterday. The story was similar with 2023 seasons, but gains were limited to 1-2%. As the wind power forecast picks-up towards the end of this week, day-ahead baseload has dropped slightly to £305/MWh – although day-ahead NBP gas rose 5% to 370p/therm due to disruption of Norwegian flows. Front-month baseload was also up 6.6%, closing at £344/MWh.
The European Commission will publish its full package of measures to tackle soaring energy prices today. Central to the proposals is a (leaked) €180/MWh cap on power produced by non-gas & coal generators. However, the majority of Europe’s renewable generation capacity is delivered under fixed price agreements – raising questions over how much of an effect the measure will have. Also in the draft is a 33% ‘solidarity contribution’ on surplus profits (defined as profits exceeding the three fiscal year average to March ’22) for oil, gas, coal and refining firms.
The German government is weighing up taking a controlling stake in Uniper, the flailing utility that, pre-war, had been a major importer of Russia gas. Uniper is said to already be at the end of a $20bn line of credit and in need of further support. The reported move comes hot on the heels of €67bn worth of loan guarantees and liquidity for energy firms and €65bn in energy support for households. The latter package is progressive, shying away from the sort of universal price-capping seen in the UK and France, aiming to let high prices stifle demand amongst those that can afford it.
Date: Tuesday, 13 September 2022
European power markets opened lower after the weekend. UK baseload saw a fairly uniform drop of around 6% across the forward curve, with Winter ’22 breaking below £500/MWh to close at £474/MWh. Front-month declined more slowly, dropping 4% to £322/MWh despite sharply curtailed Norwegian gas flows. A cold snap this weekend may sharpen minds, and highlight that, despite reaching 84%, the level of gas storage cannot continue to rise strongly for much longer.
Draft proposals by the European Commission show it plans to implement an EU-wide windfall tax on fossil-fuel firms. Termed a “solidarity contribution”, it would set a minimum rate for all EU countries that would apply to profits in FY 2022. Member states could choose to increase the rate, which will be calculated based on three-year average profits since January 2019 plus a margin for future investments. The measure must only be passed by a ‘reinforced majority’ – 72% of EU member states representing 65% of the population.
Naftogaz, Ukraine’s gas-system operator, has opened a new arbitration proceeding against Gazprom, which it accuses of paying gas transit fees late and not in full. Russia signed a five-year gas transit agreement with Ukraine after fraught negotiations on 31 December 2019. Minimum volumes of 40bcm/yr (420TWh) were agreed under ship-or-pay terms, meaning Gazprom must pay for the contracted capacity regardless of whether it is used. In May, Ukraine suspended transit via one pipeline due to siphoning by separatists, affecting 1/3rd of capacity. More could now follow.
Date: Monday, 12 September 2022
Friday saw further falls in UK NBP gas. Winter ’22 was down 5% at 519p/therm, while 2023 seasons were trading at the 450-460p/therm level. Power markets moved further, however, with Winter ’22 baseload down 12% to £506/MWh and Summer and Winter 2023 at £334/MWh and £377/MWh respectively – returning to the level of a month ago. Front-month baseload was 10% lower at £337/MWh, but early trading on day-ahead has it remaining stubbornly high at £340/MWh despite strong supply and warm weather.
Despite repeatedly dismissing the idea, Norwegian PM Støre told the FT last week that he is open to discussing long-term gas agreements and price caps with the EU. Norway is the biggest winner of the energy crisis, profiting hugely off the Russian-manipulated spike in prices, which has seen the value of Norway’s energy exports quadruple to $200bn pa. This has not gone without notice, and some EU states are beginning to agitate for more generosity. Now Equinor (formerly Statoil) suggests it is open to long-term supply contracts fixed much lower than current prices – but higher than a year ago.
After the summit of EU energy ministers on Friday, the European Commission was asked to draft proposals on capping the revenues of non-gas power producers. They are expected by the end of the week. A price-cap on Russian gas proved to be too contentious, but was still backed by 15 states including Italy (the EU’s second largest importer). Germany was a major opponent of the idea, despite handing out billions to teetering utilities. VNG, once a major importer of Russian gas, is the latest to ask for government aid.
Date: Friday, 9 September 2022
In the absence of specifics around the business energy cap yesterday, forward contracts for baseload were down only slightly, with Winter ’22 trading 3.6% lower at £578/MWh. However, a broad cap on prices combined with no public-information consumption-reduction campaign (like those around Europe) could mean that the level of domestic demand-destruction required to conserve supply does not materialise. The impact of this will emerge gradually, and may keep 2023 forwards buoyant.
Key points from the energy statement yesterday;
- Domestic tariffs will be capped at 35p/kWh (£350/MWh) for electricity and 9.7p/kWh (284p/therm) for gas for two years
- Businesses, public sector and charities will match the above rates (see brackets) for the next 6 months – the business secretary will announce details later in September
- Temporary suspension of green levies worth around £40/MWh (CCL/FiT/CfD?/RO)
- Rough storage will reopen in weeks, tripling gas storage in UK
Today is the EU energy minister’s summit. Member-states are broadly expected to back proposals to increase the availability of credit to utilities. However, more ambitious plans such as capping the price of Russian gas imports are politically fraught, with many countries unwilling to risk a complete shutdown in Russian flows. Gazprom’s exports of pipeline gas are currently just one-tenth of 2019 levels and now constitute a very small proportion of overall supply. Other proposals under consideration include a €200/MWh cap on power produced from non-gas generators.
Date: Thursday, 8 September 2022
Winter ’22 baseload fell by 7% to £600/MWh yesterday. Summer ’24 was the biggest mover, however, dropping 8% to close at £246.1/MWh and now trading at a 12.5% discount to Winter ’24 compared to 6.5% previously. This is an emerging pattern; July and August saw same year seasons converge and trade roughly level – a break from the historical pattern and reflecting expectations of difficult filling conditions for gas storage in years to come. Now seasonal spreads are returning to the historical pattern of cheaper summers and pricier winters.
Putin yesterday threatened to halt energy shipments to Europe if the EU follows through with a proposal to cap the price of Russian gas. Pronouncements from Russia can be expected to become more reactive as it loses the initiative in Ukraine. Current Russian flows via Ukraine are just 400 GWh/d, compared to (heavily reduced) flows of 2,600 GWh/d from Norway. Norwegian gas maintenance is now reaching its peak impact, with flows to increase slightly next week and the week following.
Liz Truss is expected to announce a £100bn+ energy subsidy package today. The plan is expected to be financed by borrowing just as the new prime minister plans to slash taxes, with pound-dollar ratio in freefall and dropping to its lowest level since 1985. With both a weak pound and weak euro, Europe is having to pay more for vital cargoes of US LNG. The Truss cabinet is also expected to lift a ban on fracking and announce as many as 130 new North Sea oil and gas exploration licences. These moves will have no immediate impact on gas supply.
Date: Wednesday, 7 September 2022
Winter ’22 UK baseload dropped by 2% yesterday, while 2023 seasons rose 6-9%. Where previously Summer ’23 had been trading level with Winter ’23, it now trades at £377/MWh – a £34/MWh discount. The largest moves are in day-ahead NBP gas, which has crashed to 170p/therm, down from a peak of 570p/therm on 29/08. The move is in part thanks to higher Norwegian flows to the UK and stronger wind-power output. The discount on day-ahead NBP compared to TTF is now £148/MWh, highlighting the different pressures on the two hubs.
Liz Truss reportedly plans to restrict the domestic price cap increase to £2,500 for the average household. The fallout of this decision could be unabated consumption, which would put intense pressure on strained supplies of natural gas. On the business side, a freeze in wholesale gas is apparently being considered – a move which would have profound implications for businesses already hedged at high prices. Such a freeze would likely apply only to the spot market. Combined, the measures are estimated to cost in excess of £170bn and would be financed by borrowing.
OPEC+ will cut oil supply by 100,000bpd. The cartel sees threats from a global downturn which could cut demand, and it desires to keep prices above $90/brl. This may be challenging. Brent Crude was as low as $91.21/brl this morning, the lowest level since March and continuing a downward trend begun in June. A Europe tightening its belt in the face of an unrelenting energy crisis could cause demand slide ever lower this Winter and next Summer, however, and combined with discounted Russian oil sold in India and China a slide well below $90/brl is likely.
Date: Tuesday, 6 September 2022
EDF, the French national utility, has committed to restarting its entire fleet of nuclear reactors by early 2023. Half of the 56 reactors are currently offline for maintenance, with twelve affected by corrosion issues which are complex to resolve. In response, the French power market has dived. French front-year baseload is 47% lower week-on-week, trading €530 lower at €595/MWh. Historically a net-exporter of power, the tight French market has helped support prices in neighbouring countries, but a return of its entire nuclear fleet could prevent a mid-winter gas crisis in Western Europe.
Trauma over the loss of Nord Stream flows appears to have been short-lived, as European gas markets opened lower this morning. This could be reflective of the rapid charge upwards running out of buying support, with firms more willing to plan for curtailed operations than to buy at record prices. Providing further bearishness is firm gas storage, now above 82% across the EU and 93% in France, and continuing strong LNG imports – although these cannot make up for lost Norwegian flows this month.
The German government announced that it would be extending the life of two aged nuclear power plants, with the only other nuclear plant remaining on track for retirement in December. But they will not stay in regular service – instead they will operate as emergency standby capacity. These old facilities are not well suited for this purpose, taking hours to ramp generation up and down, and their removal from baseload generation will do nothing to alleviate pressures on gas storage.
Date: Monday, 5 September 2022
Gazprom announced on Friday that Nord Stream will not return after its maintenance shutdown. The ca. 370 GWh/d of lost supply is relatively small, but for a Europe scratching about for every last unit of gas it compounds fears of Winter gas rationing. The move is seen as retaliation for the G7 Russian oil price-cap proposal. Continental gas markets have surged in response, pushing the spread between spot TTF and UK NBP gas above €130/MWh.
EU energy ministers meet on Friday to discuss proposals to control energy prices. They include:
- Gas price caps; affecting imported gas and gas used in generation.
- Popular but reportedly not favoured by the EC. Portugal and Spain implemented this measure in May, with the subsidy to gas-fired generators costing around €8.4bn for one year. Crucially, gas for power consumption in Spain actually rose 35% for the period January-July.
- Removing gas-fired power stations from the electricity market.
- Could cause a rapid and major decline in prices. Firms who hedged high may demand recompense.
- A fund to provide liquidity to suppliers who face large margin calls on futures contracts as prices rise.
- Aimed to prevent supplier collapse and energy market chaos.
- The most favoured policy: effectively implementing a CfD (contract for difference) for non-gas generators. They would get a guaranteed price, but when the market exceeds this they would have to pay the difference back to regulators/governments. Such a move would be time-limited and likely expire in Spring 2023, as the EC does not want to tear-up current electricity market arrangements – yet.
- This would apply to spot markets but not to hedges made previously or futures contracts. The measure would also clash with windfall taxes on the same generators already instituted in some EU countries (meaning they would be charged twice for the same profits).
Liz Truss, anticipated to be the UK’s next Prime Minister, is expected to announced a freeze on domestic energy bills this week. Her proposals for the wholesale market are not clear, but it is likely that her government will take direction from Friday’s EU energy ministers debate. Funding and concrete mechanisms for such government intervention into the power markets will follow in an Autumn budget at the end of September.
Date: Friday, 2 September 2022
The slide in UK energy markets slowed yesterday. Winter 2022 baseload closed £0.5/MWh higher, although 2023 seasons were fractionally (1-2%) lower. Despite climbing 5.4% yesterday, front-month NBP gas is down nearly 6% this morning as a strong wind-power generation forecast mitigates demand for gas. There are headwinds on building gas storage, with inflows this week at their lowest level since June, a trend expected to persist throughout September as impacts from Norwegian maintenance ramp up and stay high until 28/09.
The European Commission is considering price caps for non-gas fired generators, amongst other proposals to tackle record energy prices. The caps would apply to renewables and nuclear power plants, the greatest beneficiaries of Europe’s spiralling energy markets – limiting operator’s profits. On the theme of price ceilings, expected to be agreed today is the G7 price cap on Russian oil. Although the non-participation of India and China would undermine any agreement, it is hoped that denying London-brokered shipping insurance to traders skirting the cap will cull non-compliant exports.
According to European Aluminium, and industry body, over half of Europe’s aluminium production is now offline. A highly energy intensive industry, the shutdown of aluminium smelters is an early warning of widespread demand-destruction. This demand-destruction, however, will be key in ensuring that Europe has sufficient supply to last through to the end of winter. But sustained high energy prices will bake-in costs for industry in the mid-term as contracts expire and new ones are signed, accelerating the slide into recession.
Date: Thursday, 1 September 2022
UK NBP gas forward contracts were down 17% across the forward curve yesterday. Winter 2022 was 30% lower than last week’s peak, and 2023 seasons were down 38%. Power followed but moves were weaker, although baseload for Summer 2023 delivery was trading at a 4.4% discount to Winter 2023 compared to a 1% premium in the equivalent gas contracts. Day-ahead baseload is down at £315/MWh this morning, returning to the level of three weeks ago, but front-month was trading up 12% at £481/MWh.
Wind power generation in the UK will pick up from today until early next week, throttling demand for gas just as Norwegian flows wind down. But as autumn threatens, the question is now how much of September’s curtailed deliveries of gas will make it to storage. Strong rates of storage fill could deteriorate in the coming weeks. And at current levels of Russian flows, the start of net withdrawals could be brought forward by weeks from the usual early November debut. Today’s storage optimism could be ephemeral.
Benchmark EU carbon prices have tumbled in the last fortnight, dropping from a record high of €98.01/tCO2 to €78.02/tCO2 this morning. Economic headwinds are the principal driver, with a broad consensus on a Europe-wide recession beginning this year which will impact fuel demand. Benchmark UKAs have not followed and remain stubbornly pegged at record high levels of £97/tCO2 – 43% higher than EUAs.
Date: Wednesday, 31 August 2022
European energy markets were sharply lower yesterday as the European Commission made noises about unspecified market intervention. Front-month TTF gas, a key European benchmark, was 18% down on close last week. In the UK, 2023 baseload seasonal contracts were down nearly £130/MWh or 22% and are currently trading at £450/MWh. As banks compete to release the highest inflation forecast – Goldman Sachs predicting a peak of 22% this morning – 2023 contracts face the greatest opportunity for bearishness, as the energy demand outlook is culled due to an expected recession starting in Q4.
The EU has met its 80% gas storage fill target a month ahead of its October 1st deadline. But even if gas storage was completely filled, demand would still have to be slashed (at current levels of gas imports) in order to avert a mid-winter supply crisis. EU countries have agreed to cut their gas use by 15% this winter compared to the five-year average. EU August gas demand was 11% down on the five-year average, helped by German industry consuming less than 80% of typical volumes. This is part economisation and part demand-destruction, forces which will become more powerful in the coming months.
Nord stream is offline today and not expected to return until the weekend. That lowers Russian flows to 400 GWh/d, nearly half current UK exports to the Continent of 760 GWh/d. This is sustaining the current spread on Continental TTF gas to UK NBP gas at €75.76/MWh, but lower than Friday’s record high of €108.68/MWh thanks to TTF’s sharp decline this week. Last week’s spike in prices has triggered a surge of LNG arrivals, with six expected in the UK in the coming five days bringing 5.7 TWh of gas.
Date: Tuesday, 30 August 2022
UK Winter ’22 baseload closed at £852/MWh on Friday, up 30% week-on-week. 2023 seasons made similar gains, with both trading at £582/MWh. Day-ahead baseload is up at £470 but lower than last week’s peak. Day-ahead baseload for delivery in August has averaged £365/MWh – nearly £70/MWh higher than the deadline price of £296/MWh for the August-22 baseload contract. The close price for September-22 baseload was £562, and the new front month is trading at £641/MWh.
Gazprom has stated that it will be reducing gas deliveries to Engie as the two companies enter a dispute over contracts. This will have an impact to Russian supply of ca. 50 GWh/d. The news came one day prior to the Nord Stream 1 shutdown, and just as French nuclear output drops to a new low of less than 24 GW – far below a peak capacity of over 58 GW. France is increasingly reliant on gas-fired generation, and although Russian supply is relatively minor compared to German and Italian consumption, French energy markets are particularly tight – making the loss notable.
European Commission president Ursula von der Leyen said on Monday that the EC will be implementing emergency measures to stabilise power markets. The intent would be to ‘decouple gas’ from power, and part of this could include a windfall tax on generators. According to German economy minister Habeck, the principal focus is structural reforms to EU power markets expected at the start of 2023. These would move electricity away from marginal-cost pricing and towards pricing on an aggregate basis, a fundamental change which could dramatically lower prices in the short term.
Date: Friday, 26 August 2022
The UK baseload forward curve increased by 5% across the board yesterday, with Winter ’22 closing at £788/MWh and 2023 seasons trading at £540/MWh. Front-month baseload was also up, at £520.3/MWh, boosted by the equivalent NBP gas contract which set a record monthly forward price of 590p/therm. EU carbon is down this week, however, trading at €88.51/tCO2 this morning compared to a peak of €98.01/tCO2 last Friday due to expectations of demand destruction as prices soar.
Norwegian exports are starting to be hit by a period of heavy maintenance works. Flows are currently reduced by 11% (vs summer peak), and could see a maximum impact of 45% on September 7th, equivalent to 1.6 TWh/d. The impact to exports will begin in earnest on September 2nd and last until the end of the month, with the most intense period seeing flows reduced by 28% (1 TWh/d – more then current Russian flows) for two weeks starting on September 7th. While much of the maintenance is expected yearly works, it come at a critical time for European gas markets.
European governments are making moves to protect domestic customers from record energy prices. Germany has slashed VAT on energy, and France has capped prices well below current market rates. However, while these types of protections shield consumers from big bills, they inhibit desperately needed cuts to energy consumption – bad news for a Europe dependent on insufficient gas storage. Alternative policies, such as those used in Ukraine, don’t tie subsidy to prices but give a discount on a fixed level of usage, disincentivising households to consume over that level lest they incur higher costs.
Date: Thursday, 25 August 2022
The UK baseload forward curve was up by 7% yesterday. The spread between Summer ’23 (£513/MWh) and Winter ’23 (£518/MWh) is just 1%, emphasising expectations that gas storage levels entering next summer are going to be very low. UK baseload for November and December delivery is trading above £800/MWh, high but below where the equivalent French contracts are – €1520/MWh and €1440/MWh respectively – highlighting the scope for further rises.
EU-wide gas storage is now higher than at any point in 2021. Currently at 78%, if fill continues at the rate of the last fortnight storage levels could be above 90% by the end of September. This would be above the five-year average and even at an accelerated rate of withdrawal (due to low Russian gas flows), it seems unlikely that storage could be completely depleted in a normal winter scenario. Injection remains strong thanks to Northern European governments’ willingness to buy gas for storage at almost any price.
The U.S.A’s Freeport LNG liquefaction plant, damaged in an explosion in June, has announced a further month-delay to its restart. The facility is now expected to return to service in mid-November. The timing of the announcement re-ignited bullish momentum on Winter ’22 power, with UK baseload up £46/MWh in response at £743/MWh. Front-month TTF gas was trading at €316/MWh this morning, up 21% from close on Tuesday – a cost of around €700/MWh of power for a typical gas-fired generator.
Date: Wedneaday, 24 August 2022
UK baseload forwards fell for the first time in over a week on Tuesday. The forward curve fell by 2.5% or more after breathless gains on Monday amid lower buying pressure. Front-month baseload was 10% lower at close, although equivalent NBP gas was only 6% down. Energy market bullishness has pushed the Euro below Dollar-parity this week, a situation which could be maintained on and off until at least the end of 2022. UK day-ahead baseload is trading at £530/MWh, the highest level in Europe outside of France.
Japan’s Prime Minister Fumio said today that the country will restart more idled reactors, and take the further step of developing next-generation reactors. The country has subjected old reactors to a re-licencing process involving stricter safety standards imposed in the wake of Fukushima, and public opinion has swung back towards nuclear generation. The change has been fuelled by building energy costs and a hot summer which led to calls for energy saving, amid a recognition that despite have the largest import capacity in the world, Japan cannot rely on LNG for energy security.
The EU’s Agency for the Cooperation of Energy Regulators (ACER) published a recommended earlier this month that Germany’s singular power market bidding zone be split into four. Germany faces the issue of massive renewable generation capacity concentrated in the country’s north which artificially lowers market prices for the fossil-fuel reliant south, disincentivising competition. Crucially, grid congestion and balancing during peak renewable generation is very expensive. Post-split, southern states would likely see electricity bills double the size of northern states, pushing them away from gas and coal.
Date: Tuesday, 23 August 2022
UK baseload for winter delivery leapt by 9% to close at £715/MWh yesterday, matching moves across the forward curve. 2023 seasons were trading around £500/MWh, and Front-month baseload was up 14% as a result of the Nord Stream shutdown news. Despite slightly higher exports of Norwegian gas to the UK, day-ahead baseload is still trading at £500/MWh, thanks to a 34% jump in day-ahead NBP gas yesterday.
Although API2 front-year coal was propelled by gas markets to a record high of $332/t yesterday, fundamentals point to a more bearish picture. Refinitiv data shows that since the start of the ban on Russian coal imports to the EU on August 10th, some shipments of (very cheap) Russian coal have continued to enter the region. A 6% dip in carbon prices on Monday has also yet to put pressure on coal. Meanwhile, Germany has scheduled the restart of one its largest coal-fired power station, the 875 MW Heyden plant, which will run from the end of August until April.
LNG imports to the UK are up slightly, with four cargoes totalling 4.4 TWh expected in UK ports in the next seven days. However, Benelux ports continue to see very strong rosters amidst soaring prices, with 10 cargoes expected this week carrying 11.2 TWh of gas. After yesterday’s bullishness, front-month TTF closed with the second highest spread to spot landed Asian LNG (JKM) – €79.54/MWh. Despite rising stockpiling demand in Asia, European markets continue to set the price direction.
Date: Monday, 22 August 2022
EU carbon set a record high of €98/tCO2 on Friday, which further boosted coal and gas, despite poor economic indicators for Europe which would herald a decline in industrial activity. UK front-month baseload, £421/MWh on Friday, was yet to trade today. However, it will likely follow this morning’s jump in front-month NBP gas, which is 20% up on Friday’s close at 550p/therm – a record high.
Gazprom announced that it would halt flows on Nordstream for three days on August 31st due to maintenance at a compressor station. Markets have responded strongly to the news, with the same fears abounding of a prolonged shut-off as during July’s outage. Spot power and gas has soared across the continent in response, with UK day-ahead baseload trading at £515/MWh this morning. This is the second highest recorded day-ahead price, falling just £25/MWh short of the record high set in September 2021 (when gas storage fill appeared critically low ahead of winter).
Germany’s economy minister Habeck on Sunday ruled out extending the lifespan of the county’s last three nuclear power plants. In recent weeks, the German government appeared to be shifting its stance to postponing the shut-downs until the end of winter. Despite the concept being broadly supported by the public, it seems German leadership has been cowed by fears of re-igniting the nuclear-safety debate. Keeping the reactors online would have saved a significant 2% of German winter gas consumption.
Date: Friday, 19 August 2022
Following the pattern set so far this month, the UK baseload forward curve rose by 5% across the board beyond Winter ’22, which gained just 1% to close at £632.6/MWh. In contrast, NBP gas for Winter delivery has matched the forward curve’s 15% week-on-week gains and it now trading at 591p/therm. Day-ahead baseload is sharply down this morning at £312.5/MWh, compared to a week average of £389/MWh. Front-month baseload is now at its highest level since the mid-Winter panic of December 2021, closing yesterday at £411/MWh.
Russia’s energy export earnings are expected to increase by 38% to $337.5bn this year, according to data from Russia’s economy ministry. Despite gas pipeline exports to Europe being down by 30% year-on-year in H1 2022, market sensitivity to changes in Russian gas flows has enabled a massive boost in earnings. However, the full impact of the dual sanctions on coal and oil won’t show fully until the start of 2023, and Reuters analysts expect higher energy revenues will only partly compensate for the damage wrought by economic sanctions.
Britain will extend the life of several coal-fired power plants to act as last-resort generation capacity. At just under 2 GW, the four units at West Burton A and Drax, as well as a possible fifth at Ratcliffe, will serve as back-up flexibility in the event of a mid-Winter gas shortage. The expected cost of the availability is £420m, about £216.5/kW/yr, nearly triple the T-1 capacity market auction price of £75/kW/yr, which secured about 5 GW of additional capacity for this Winter in February.
Date: Thursday, 18 August 2022
Yesterday yielded minor 1-2% additions on the forward curve beyond Winter ’22 for UK baseload and NBP gas. While 2023 seasons have posted monthly increases of up to 70% in baseload and 83% in gas, Winter ’22 has risen just 37% and 42% in each commodity respectively. The slower rate of increase may indicate that the cost of energy for Winter delivery is approaching levels where demand destruction becomes more prominent, and prices could be sustained at this high ceiling until delivery.
Norsk Hydro announced yesterday that it would be closing production at the Slovalco aluminium smelter in Slovakia at the end of September, citing unsustainable energy prices as the primary cause. The announcement came the day after Nyrstar’s Budel zinc smelter in the Netherlands suspended operations. Smelters are among the most energy intensive industries, and these energy-related shutdowns signal the start of serious demand destruction in Europe’s industry. Sustained high prices will result in further closures, amplifying economic turbulence.
API2 year-ahead coal swung to a record high of $306/t yesterday, a week-on-week gain of 17%, driven both by curtailed river barging capacity and surging carbon prices. The move comes after Germany’s national energy regulator yesterday said that the country is likely to miss its 95% November gas storage target. Hitting even 90% could be challenging at current levels of Russian flows, and a cool Autumn would strain further inhibit storage top-ups.
Date: Wednesday, 17 August 2022
UK energy markets notched up another day of steady gains yesterday. 2023 baseload seasons were trading above £400/MWh for the first time, while Winter ’22 closed at £624/MWh. Front-month baseload was up 5.3%, echoing latent anxieties about gas storage levels. Benchmark EU carbon reached its highest level since the crash in February, €94.85/tCO2, amid halved auction volumes for August. However, the intensifying drumbeat of recession threatens bullishness.
Utilities in Japan and Korea are competing more fiercely in the global LNG market to secure supplies for Winter. JKM spot LNG jumped 24% in trading yesterday, narrowing the spread to front-month TTF by 59%. TTF still commands a €32/MWh premium over JKM, but the spread is now back those levels prior to the surge in TTF which began a month ago. The shift is a warning that Europe can’t necessarily rely on additional LNG cargoes this Winter to plug gaps left by absent Russian supply.
Germany secured a commitment from national utilities to keep the two new Floating Storage and Regasification Units (FSRUs), expected to come online in Winter, fully supplied until March 2024. Germany chartered the FSRU vessels in Spring, with the first expected to become operational at the end of the year. Germany currently receives LNG shipments through Benelux ports.
Date: Tuesday, 16 August 2022
The UK baseload forward curve was up 4% across the board yesterday, as speculative buying continued to bring gains. Front-month TTF gas closed at a new record high of €228.50/MWh, jumping 11% to exceed levels following the Russian invasion of Ukraine. This is a perpetuation of the ongoing bullish trend, which began in mid-June, helped by maintenance-inhibited Norwegian exports this week. UK DA baseload power is trading up at £405/MWh and averaging £294/MWh so far this month.
EU gas storage will reach 75% today, totalling 834 TWh and exceeding the level of October 1st 2021. However, while Europe has historically relied on Russian gas flows of 5.5 TWh/d during the heating season, current Russian exports of about 1 TWh/d means a deficit of 4.5 TWh/d must be replaced – equivalent to ca. 25% of daily Winter consumption. Increased draw on gas storage and higher LNG imports will largely mitigate the shortfall. In the first half of this year European imports of LNG were up by 55%, and if this trend continues then LNG could replace 30% of the missing Russian gas.
Poor economic indicators for China, released on Monday, have pushed Brent Crude down to $93.74/brl this morning. The world’s second largest economy is facing slowing growth, and government plans to reduce lending rates and inject stimulus seem unlikely to overcome the dual challenges of a zero-Covid policy and a deteriorating property market. Several Chinese cities remain under lockdowns, a situation only expected to worsen over Winter.
Date: Monday, 15 August 2022
Carbon is on a renewed bullish run, with front-December EUAs jumping nearly 18% to €89.56/tCO2 in just over two weeks. Carbon prices are expected to remain sustained in the short to mid-term. Despite this, the clean dark spread for German hard-coal plants is now at over €270/MWh, and the TTF day-ahead coal-switching price is €120/MWh – supporting coal burn. The German government is expected to issue a decree to prioritise the transportation of coal by rail as the water levels on key rivers continue to decline, supporting front-month API2 above $340/t.
Wind power generation will pick up gradually over the course of today and maintain a medium level of output this week. Temperatures will remain above seasonal norms in the UK and north-west Europe, fuelling cooling demand. Day-ahead baseload is trading at its highest level since the early-March price spike, up at £380/MWh from £273/MWh last week – highlighting the continued scope for swings to extremely high spot prices.
The UK economy contracted slightly in Q2. GDP fell by 0.1%, with the additional bank holiday impacting economic activity. Forecasts see the country experiencing an unavoidable recession over Winter, principally the result of high energy prices. Only mild, wet and windy weather, akin to last Winter’s, would bring down energy prices during the season – although this wouldn’t take effect until Q1 2023. Painful prices will squeeze domestic demand, possibly avoiding rationing in all but the worst case scenario. Winter ’22 baseload was down 1% at £590/MWh on Friday.
Date: Friday, 12 August 2022
Despite little new information, highly speculative trading pushed UK baseload seasons from Summer ’23 to Summer ’24 up by nearly 9% yesterday. Winter ’22 was steadier, trading just 2% up but closing-in on £600/MWh. Front-month baseload was also less volatile, just 2.2% up on the previous close at £366/MWh, and is expected to oscillate but remain level pending major supply news.
LNG imports to Europe remain high and far outstrip those to the UK. The Dutch Gate gas terminal and the Belgian port of Zeebrugge, crucial inputs for TTF, are expecting cargoes of 11.6 TWh in the coming week – much of which will be destined for storage. This is equivalent to nearly 3% of Dutch annual demand. Front-month TTF is trading at a €58/MWh premium to Asian JKM, with the spread widening once more after Asian prices jumped last week. Retaining this premium will be key to securing sufficient LNG supplies for Europe this Winter.
Water levels on the Rhine have continued to fall, with some vessels no longer able to sail and others three-quarters empty. The disruption is so bad that it’s expected to knock half a percentage point off of Germany’s 2022 growth. Crucially, output at two coal fired power stations, together accounting for 4.2% of the Germany’s coal fired capacity, will be severely restricted. The Rhine isn’t the only river suffering low water levels, and heat-waves are only worsening the situation. Relief is not expected until September at the earliest.
Date: Thursday, 11 August 2022
The UK baseload forward curve posted another 6% gain yesterday. Winter ’22 closed at £585/MWh, and Summer ’23 at £343/MWh. Front month is trading at £356/MWh, while day-ahead baseload has averaged £261/MWh in the last fortnight, compared to £290/MWh the fortnight previous. NBP gas saw even larger gains of 7.5-10.5%, with 2023 contracts not closing down yet this month.
The Baker-Hughes weekly US oil rig count fell by 1.2%, its largest drop since September last year. Reflecting falling oil prices since mid-June, rig counts have stabilised, following 2 years of US oil production increases. While a wave of recessionary-fuelled anxiety returned Brent Crude to its pre-war level of $94/brl, energy markets have since rallied in response to an easing of America’s annual inflation in July.
While the US may escape a serious contraction, the picture in Europe – rocked by the energy crisis – remains bleak. It is worsened by bottlenecks in Europe’s gas distribution network. Spreads between national gas hubs, which had previously been below €1, have rise as high as €100. The principal cause is a bounty of LNG regasification terminals in the West and a dearth in the East. While Spain and the UK can tap into a global LNG market, other major consumers like Germany remain dependent on interconnectors. This drives down gas prices in the UK, which in turn makes it less competitive globally, reducing much needed imports.
Date: Wednesday, 10 August 2022
While Winter ’22 baseload continued to wobble yesterday the remainder of the power forward curve rose 2.5-5%, tracking 5-6% gains in NBP gas. NBP Summer ’23 gas closed at 385p/therm, 17% lower than Winter ’22 and 1% higher than Winter ’23. In comparison, Summer ’23 baseload was 43% lower than Winter ’22 and 2.5% lower than Winter ’23. These differences reflect expectations of another Summer of fraught efforts to fill gas storage, and concerns over alternative generation capacity in the event of a gas shortage this Winter.
Bloomberg reported yesterday that Britain is planning for organised blackouts in January, which would affect both industry and households. If cold weather coincides with gas shortages, the government’s ‘reasonable worst-case scenario’ envisages a power capacity short fall of over 15% during peak periods. Unlike most European nations, Britain has yet to prepare its public for the potential of Winter energy shortages and rationing, largely resulting from a government paralysed by the Conservative leadership race – which has yet to address the crisis.
The EU’s ban on imports of Russian coal begins today. Russia supplied 70% of Europe’s imported thermal coal in 2021, although the amount spent on Russian coal accounted for just 5.6% of European spending on all Russian energy that year. The next full embargo, that on oil, does not come into force until 2023. However, Russia appears able to circumvent sanctions on coal and oil, selling the fuels at discounted rates principally to India and China. Only a ban on imports of natural gas would truly hit the Kremlin’s chequebook, as flows cannot be re-routed without new pipelines.
Date: Tuesday, 9 August 2022
Yesterday was a relatively quiet day for UK power and gas, with Winter ’22 baseload falling 0.8% to £569/MWh and Summer ’23 rising 0.8% to £315.5/MWh. Winter ’22 NBP gas is trading at 462p/therm, nearly 30p/therm below the record high set on July 27th, and overall appears less frothy than baseload. Similarly, front month NBP gas and baseload were down for the second day, tracking broader losses in coal and an oil market bowed by fears of inflation.
Several cities in Germany have introduced energy rationing to boost flows of gas to storage. Germany has a target of 95% storage fill by November 1st, with levels currently at 72.6%. A very tight spread of €8.50/MWh on German gas between September (€193.5/MWh) and December (€202/MWh) reflects the urgency of procuring gas for storage in the Autumn. Compounding the problem, Germany’s final three nuclear reactors are expected to shutdown at the end of this year, although Chancellor Scholz suggested last week that they could remain online for Winter.
Olkilouto 3, the long awaited first nuclear power station to use EDF’s EPR reactor design, has resumed testing after pausing in May after debris was found inside a turbine. After construction began in 2005, the project was repeatedly delayed and eventually overtaken by China’s Taishan 1 – also an EPR – which was completed in 2018 (since shutdown due to a suspected leak). With first concrete poured in December 2018, the UK’s 3.2GW Hinkley C is slated to start production in June 2027. No EPR has been finished in fewer than 9 years and only one of the four completed reactors (Taishan 2) is in normal service.
Date: Monday, 8 August 2022
The UK gas and power forward curves continued to make incremental gains of 1-2% on Friday. Day ahead was lower at £256/MWh and appears to have broken the upward trend seen from mid-April, staying within the 240-270/MWh range last week. Front-month UK baseload was steady after Monday, remaining at the £355/MWh level. API2 front-year coal was trading down 13% week-on-week at $235/t, dropping from record highs the week before.
Wind-power generation is expected to be weak in the coming fortnight, hovering around the 2-3GW level. This will raise gas for power demand in a week where temperatures will once again soar across North-Western Europe, putting additional strain on networks. Gas supply is otherwise stable if low, however technical issues continue to plague gas exports via IUK which are lower by 43GWh/d with a full shutdown affecting 620GWh/d on Thursday. That will boost the spread between TTF and NBP again this week.
France has passed legislation which allows the government to control gas-fired power stations in order to restrict gas usage and prevent blackouts in winters for the next four years. The bill also included provisions for a 50TWh/yr floating LNG terminal at Le Havre, minimum gas storage targets each year, and an increase to the volume of cost-regulated power (Arenh) sold by EDF to 120TWh/yr – around a quarter of French annual demand.
Date: Friday, 5 August 2022
Winter ’22 baseload rose 5.7% yesterday to £578.6/MWh, and the rest of the forward curve followed to reach new record highs. The principal driver going into Winter remains the balance of Russian flows and gas storage levels. With the situation around both of these fundamentals not changing in the past week, the weekly gain of more than £50/MWh on Winter baseload is highly reactive.
After the driest July on record, Europe is facing widespread drought. The absence of rain is having a building impact on power generation. In France, where many nuclear power stations are cooled using river water, EDF has had to turn down plants on the Rhone and Garonne due to high river temperatures and low flows. Norway is facing a shortage of hydropower, which typically generates 90% of the country’s electricity. And water levels of just 60cm on the Rhine is limiting coal barging to Germany’s power plants. August isn’t likely to bring relief, with temperatures set to rise across the continent again from next week.
Coined as ‘Turbine Gate’, the farce of the Nord Stream turbine saga continued this week. Germany’s Chancellor Sholz visited the engine on Wednesday and declared it working. Gazprom responded saying it required documentation to prove the turbine wasn’t subject to sanctions, although the European Commission and the UK had already confirmed in writing that no sanctions were preventing its return. Russia will likely continue to leverage this excuse until it decides to cut flows further.
Date: Thursday, 4 August 2022
Winter ’22 baseload steadied on Wednesday, falling 0.5% while the rest of the forward curve rose 1-2%. These small but consistent daily rises have caused the Winter ‘23 contract to set new record highs every day in the last three weeks, with power markets on a relentless tear since the end of June. NBP gas contracts had taken a breather in mid-July, but then resumed their upward streak by July 20th. Adding to power’s woes, EU carbon prices have jumped 13% since the end of last week to €84.50/tCO2.
Global coal consumption this year could match 2014’s record of 8bn tonnes, largely thanks to a growing Indian economy and gas-to-coal switching, which is particularly intense in Europe. Germany remains locked in an acrimonious debate over whether to prolong the life of three nuclear power stations which are due to be retired at the end of the year. Scrapping the plants will shift load principally to coal-fired capacity. Further tightening in the global market could likely come from China resuming imports of Australian metallurgical coal, which could have been traded in thermal markets.
Modelling suggests that even in a scenario where additions to gas storage are sharply reduced over the coming month, EU storage will still accumulate 85% of capacity before the start of November. If top-ups continue at the average rate of July, accounting for a weather-related tail-off in Autumn, levels are on track to hit 90% by early October. The EU has a 90% storage target by Nov 1st. Even if storage reaches that level, drawdown on storage this Winter will be relatively stronger as weaker supply is broadly expected, and a cut-off of Russian gas seems likely.
Date: Wednesday, 3 August 2022
Front-month TTF rebounded to €208/MWh, just €7.50/MWh short of the record set in the wake of Russia’s invasion of Ukraine. This has pushed the average spread between TTF and the Japan-Korea Marker (JKM) to €57/MWh in the last week. In contrast, front-month NBP is trading at a €25 discount to JKM, explaining the concentration of LNG deliveries to Continental terminals. Meanwhile, Winter ’22 UK baseload set a new record high of £550/MWh yesterday without a clear bullish driver.
The spread from NBP to TTF widened to a new record high of €101/MWh yesterday, with NBP trading at a near 50% discount to the Continental benchmark. High levels of wind power generation were the principal driver, although a minor outage on the IUK pipeline also fuelled the move. UK exports of gas currently exceed Continental imports of Russian pipeline gas. UKCS and Norwegian North Sea gas production remain high and stable, with minor Summer maintenance slightly lowering output.
Denmark independence from imports of gas have been delayed from early next year to 2024 as the restart of the country’s Tyra gas field was delayed by nine months today. Capable of producing nearly 100GWh/d of natural gas, the end of maintenance on the field would enable Denmark to become a net exporter. The news comes as the EU-wide gas storage hits 70%, with France announcing this morning that it is on course to fill 100% of its reserves by the start of November. France hosts about 12% of EU storage.
Date: Tuesday, 2 August 2022
Yesterday was bullish, as UK power forwards tracked gas markets and set steady rises of 2% across the forward curve, aside from which Summer ’24 jumped 5%. UK day-ahead baseload is down at £250/MWh, returning to the level of mid-July, although it is expected to rise from tomorrow as wind generation falls. Brent crude has slipped back below $100/brl amid a poor outlook for fuel demand and an OPEC+ meeting, which could yield a modest increase to supply.
Announced yesterday, China’s July PMI reading of 50.4 came in well below analysts expectations of 51.5 and signalled a sharp slowdown in the expansion of factory activity following contractions in Spring due to rolling lockdowns. Manufacturing activity in Britain and America wasn’t much better, expanding at its slowest pace since the start of the Covid pandemic. The news comes shortly after GDP data from the US showed a second quarter of negative growth (an annualised 0.9% fall) – a popular definition of recession.
Wind power output in the UK starts the week strong but will rapidly tail-off on Wednesday, continuing a lumpy pattern of wind generation that began in June. In sharp contrast to last year and historically, the UK is taking no power via interconnectors with France – with volumes replaced principally by additional gas burn. Despite difficulties with reactors offline due to corrosion issues, forecast generation for the French nuclear fleet is expected to rise to over 54GW by the end of December – above the five-year average, although unexpected maintenance could impact this.
Date: Monday, 1 August 2022
Winter 22 baseload fell back 2.8% on Friday to £523/MWh, while the remainder of the baseload forward curve posted small increases. Front-month NBP gas is trading 1% up this morning as it moves onto the September contract. The September gas contracts on TTF and NBP will be subject to intense focus as traders weigh the likelihood of EU members meeting their 80% gas storage fill commitment by the end of the month. If the storage fill trend notably slows in the coming month, expect rapid prices rises on the September contract.
LNG demand in Asia is slipping as the price of LNG continues to loiter at record highs. China, the world’s largest import of LNG, saw volumes drop by 19% so far this year compared to the same period in 2021. Europe typically imports less than half that of Asia, although the ratio of global LNG heading west vs east rose from 1:5 to 1:2 between July ’21 and July ’22. Import rosters for France, Belgium and the Netherlands remain packed as a result, although the UK is expecting just one cargo in the coming week as NBP continues to trade at a discount to TTF.
Spain is to propose to the EU a cap on the price of EUAs. EUAs have been trading in the range €75-85/tCO2 for much of this year, and are currently 47% up year-on-year, and forecasts on average EUA prices for 2023 are €98/tCO2, adding over €40/MWh to each MWh of power generated by a CCGT. On top of this, the EU’s proposed carbon border adjustment mechanism (CBAM), a carbon-based duty on imported goods, has come under additional scrutiny for its potential to intensify existing untamed inflation.
Date: Friday, 29 July 2022
Front-end UK energy markets stalled after a week of gains yesterday, with markets seemingly catching their breath. Winter 2022 NBP gas dropped to 470p/therm from a peak of close to 500p/therm on Wednesday, as support for extremely high prices appeared weak amidst continued strong flows of gas to storage. EU gas storage is 68.1% full, with expectations of at least 75% by the end of September and over 85% when heating season begins in earnest at the end of October.
Aside from the decrease in exports on Wednesday, Russian flows to Europe are stable at ca. 740GWh/d. Continental gas markets remain nervous, however, and near-term contracts are hovering at record high levels of €200/MWh. TTF day-ahead is trading at a €72/MWh premium to NBP, helping to drive UK gas exports of nearly 800GWh/d to the Continent.
The Polish Prime Minister yesterday said that Poland would reject any EU mandated reduction in gas consumption. Aside from Hungary’s petulant leader Viktor Orban, who had opposed the plan, all member-states voted through the Commission’s proposal for a 15% reduction in gas consumption. But Southern states, who rely less on Russian gas, have come out and suggested that they should not be responsible for Northern states’ dependence on Russian imports – and, crucially, should not have to share gas supply in the event of an emergency.
Date: Thursday, 28 July 2022
UK energy markets were looking for direction yesterday after an action-packed start to the week. UK baseload saw mostly small increases of 1-2% across the forward curve, although NBP gas forwards largely fell by a similar amount. Winter 22 baseload was at a new record high of £540/MWh, in line with 7-10% gains on day-ahead and front-month power and gas. Brent crude has recovered from a dip below $100/brl last fortnight and is now trading at $108/brl as Saudi Arabia again refused to increase production, although an OPEC+ meeting on August 3rd will be closely watched.
Freeport LNG, the U.S. LNG liquefaction plant damaged by fire in early June, is expected to return to partial service in October. Despite the closure, the U.S. became the world’s largest exporter of LNG in the first half of 2022, with total liquefaction capacity expanding by 19% – aided by the opening of the new Calcasieu Pass facility in Louisiana. The huge Palquemines LNG is the next facility expected to open, anticipated in 2023, and it will raise U.S. export capacity by 23% from current levels to a total of 5.1TWh/d (compared to 3.2TWh/d in 2021).
Renewable power growth is expected to hit 10% year-on-year globally by the end of 2022. In the UK, three large windfarms are expected to be fully operational by year-end; Hornsea Two, Moray East and Triton – which have a total nameplate capacity of 3.2GW, increasing wind power capacity by 13%. According to the IEA, across Europe fossil-fuel generation could decline by 6% in 2023 thanks to renewables growth of 7% and reductions in gas-fired generation of 7% (60TWh – although coal-fired generation will rise by 50TWh, or 8%, to meet this).
Date: Wednesday, 27 July 2022
Trading on UK baseload for winter delivery yesterday set a new record high of £529/MWh, up nearly 70% month-on-month. Contract highs were set all along the baseload forward curve, with gains varying between 5-9%. Front-month gas and power also rose, although increases were muted by low seasonal demand. Day ahead baseload closed at £315/MWh, continuing a 2-month general upward trend in spot pricing.
A supply cut on Nord Stream appeared to focus minds on Tuesday, with the EU pushing through a deal to reduce gas consumption by 15% despite the previous reservations of many member states. Gas exports via Nord Stream were stable at the post-resumption level of ca. 700GWh/d early this morning, although reduced flows are broadly expected with Gazprom nominating lower flows of 360GWh/d later today. Month-ahead TTF prices have jumped 35% to €217/MWh so far this week.
Coal markets have resumed their bullish trend, with API2 coal for 2023 delivery gaining 16% in trading this week to reach a renewed high of $298/t. The final ban on imports of Russian coal comes into place in mid-August, just weeks away, excising the Continent’s principal supplier just as power stations across the EU ramp up coal burn to replace increasingly scarce natural gas. However, coal deliveries are being hampered by low water levels on the Rhine as well as strain on the rail network from Ukrainian grain exports – posing additional challenges to replacing gas.
Date: Tuesday, 26 July 2022
Winter 2022 UK baseload climbed 6% to close at a renewed high of £485/MWh yesterday amid Russian gas cuts. Bullish action tapered further along the forward curve, although trading volumes were thin. Front-month NBP gas was trading 9% up at 350p/therm this morning, which could drag front-month power up. Day-ahead baseload was up 22% at £312/MWh this morning, bringing the average price for this month to £254/MWh. UK energy forward contracts are expected to be bullish today, strongly influenced by action in Continental gas markets.
Despite resuming exports at the same level as the month prior to Nord Stream maintenance on July 21st, Gazprom yesterday announced it would be reducing flows on the Baltic pipeline by half again. Shortly afterward, the Ukrainian state pipeline operator reported dangerous spikes in pressure which came without notice. This emphasises that it is easy for Russia to find reasons to slash flows as it attempts to replicate the same strategy of constricted flows applied last year amid low storage levels entering winter, but which was then foiled by one of the most mild winters on record.
EU carbon prices were hit last week by the publishing of the gas savings plan by the EU commission, which sharpened focuses on the increasingly real prospect of gas rationing this winter. The NBP-TTF spread, below €60/MWh for only three days in the last month, reflects these anxieties on the continent. Extremely high TTF prices of €197/MWh for Q4 are continuing to draw-in LNG cargoes at a higher than average rate, with Belgian and Dutch ports expecting 9.7TWh in the coming eight days, equivalent to three days of total German natural gas imports at current rates.
Date: Monday, 25 July 2022
Front-month UK baseload steadied on Friday at £286.6/MWh, after a bullish week which saw gains of 26% and broadly tracking sentiment in front-month NBP gas which climbed 56% over the same period. The UK baseload forward curve closed on Friday 5-10% up from the previous week as traders weighed the probability of future cuts to gas supply against building recessionary concerns. EU carbon cemented a week of losses, 11% down overall, while front-year API2 coal was also down by 6.3%.
Gazprom stated on Friday that under its current contract with Siemens it has no obligation to facilitate the return of the Canadian-repaired turbine to Russia. This comes after it appeared the turbine had become stuck in transit in Germany as authorities tried to acquire the appropriate paperwork to send it on. Gazprom maintains that the missing turbine is the reason for flows on the Baltic pipeline being reduced by 60%, a claim dismissed by the EU.
Germany has begun taking measures to reduce energy consumption, with a national campaign to reduce gas demand through shorter showers, better insulation and slightly increased fridge temperatures. Even as Germany begins to prepare its citizens for winter energy shortages, many EU countries openly rejected the EU commission plan to cut gas consumption by 15% across the bloc. The proposal is expected to be renegotiated in coming weeks to create dispensation for the balance of industrial/domestic users in different member states.
Date: Friday, 22 July 2022
Despite gaining on Wednesday, front-end UK baseload fell back slightly yesterday as Nord Stream flows resumed. The forward curve remains stable at current high levels, however, as tension over the consistency of Russian flows continues. The average of day-ahead baseload prices so far this month is £253/MWh, 33% more expensive than the average of July when it was trading as front-month (£190/MWh). Front-month was up again by 8% yesterday, closing at £284.2/MWh.
The much-maligned Nord Stream 1 turbine which Russia says is the chief cause of reduced flows on the pipeline is stuck in Germany because Moscow has yet to give the go-ahead to transport it back. It is clear that the turbine is not the ultimate reason for restricting flows on the pipeline, but rather to back Europe into a corner over the Ukraine crisis. IEA chief Birol responded to the EU’s 15% gas cut proposal by saying even without incident, Europe must slash consumption by 20% to make it through winter.
The UK is expecting just three LNG cargoes before month-end while France sees deliveries soar to ten over the same period. Record power prices in the EU’s second largest economy have attracted cargoes originally bound elsewhere. The TTF front month – JKM landed LNG spread remains extremely strong at over €25/MWh, and has remained positive for more than three months as Asian LNG demand is outstripped by Europe’s supply shortfalls.
Date: Thursday, 21 July 2022
UK baseload climbed slightly yesterday, with seasons out to Winter 23 gaining around 2%. Meanwhile, prompt energy markets were out of sync, with front month gas steadying after a rapid rise on Tuesday and front-month power closing 9% higher. Similarly, day-ahead baseload dropped 13.5% to £294/MWh as NBP day-ahead jumped 32% to 268p/therm thanks to low wind power generation.
After days of speculation, flows on Nord Stream have resumed at the same 40% capacity level they were prior to the scheduled maintenance. The EU remains wary, however, as the move opens the door for further market manipulation down the line. In a proposal laid out yesterday, member states were encouraged to cut gas consumption by 15% from August until March compared to the five-year period average – although the cut could become binding in a supply emergency.
EU carbon prices were down 6% yesterday, the largest daily move since May, with benchmark UKA prices following – breaking through £80/tCO2 for the first time since April. These moves came despite expectations of elevated coal burn across Europe this year, increasing the carbon intensity of the power sector and driving up total EU emissions by 1.3% annually. Competition for global coal supply continues to intensify, with stocks in India running at critical levels and thought to be a key supporting factor for seaborne thermal coal.
Date: Wednesday, 20 July 2022
The UK baseload forward curve was essentially static yesterday, with the notable exception of Summer 2024 which posted an 8.7% gain to close at £180/MWh. Forward contracts for NBP gas steadied from last week’s falls which bled into Monday. Day-ahead UK baseload has rallied 40% to trade at £340/MWh this morning, its highest level since early March and highlighting a two-month bullish trend in spot prices fed by record spreads in gas and power to Continental markets.
The EU will set out plans today which will urge countries to cut gas demand. They will include voluntary targets to slash consumption over the next eight months, although these could be made binding if supply levels are deemed critical. The move follows warnings from the IEA that Europe’s current efforts are insufficient to last this Winter without more Russian gas, even if all other supplies are maintained at maximum capacity. EU gas storage is 64.7% full with three months remaining in the storage season.
Putin has signalled that Nord Stream will restart on time tomorrow but with flows strongly restricted as EU nations anxiously await increased flows. As the heatwave passes its peak in Atlantic Europe, France’s power networks have been pushed to the brink – seeing day-ahead prices of €820/MWh. Nuclear generation dropped below 25GW, just 39% of national capacity, forcing France to suck in precious supplies of natural gas, which in a normal Summer would have been banked in storage.
Date: Tuesday, 19 July 2022
Monthly volatility on day-ahead NBP gas was the highest it has ever been in June. The average daily price move was 40%, compared to 2.8% in June 2021. Hyper-focus on supply dynamics was the principal cause, with markets rapidly responding to news around gas flows from Norway and Russia, although highly variable wind-power production exacerbated swings. Day-ahead gas is trading 12% up at 182p/therm, and day-ahead UK baseload down 5.5% at £240/MWh.
Gazprom declared a retroactive force majeure in letters to customers on July 14th, covering supplies back to June 14th. This was taken as a further hint that Nord Stream flows won’t return in full, and frantic late trading on Winter 22 pushed it to a fresh record high. Reaction on contracts beyond Winter was limited however, perhaps reflecting a pre-existing expectation that Russian flows will be eliminated in the mid-term by one party or the other. Uniper, a beleaguered (and Germany’s largest) gas importer, was amongst customers receiving a letter.
Italy is the only major European economy taking supplies of Russian gas. With the suspension of flows via Poland (Yamal-Europe) and Nord Stream, Germany is instead receiving supplies through hubs in Belgium and the Netherlands – supplied by the UK and LNG imports – and from Norway. Declining Russian gas supply and worries over the impact of rising interest rates on precarious government finances has helped trigger a political crisis in Italy which could lead to a snap election. Polling favours hard-right parties softer on Russia, emblematic of gradually building war-fatigue in the EU.
Date: Monday, 18 July 2022
Friday saw an 8% decline in the front two seasons for UK gas, with Winter 22 falling 34p/therm to 402.5p/therm. The remainder of the gas forward curve also saw falls of 4-6%, however falls in UK baseload were smaller with drops of 3-6%. Baseload power for August delivery was down 11% at £227.7/MWh on Friday, while day-ahead is trading at £254/MWh this morning. Prices are expected to remain high and volatile this week.
Wind power output for this week will be lower than last, picking up over the course of Tuesday and dying back on Thursday. Increased gas flows from Norway have brightened the supply picture, returning to typical levels of around 3,500GWh/d as maintenance slows, and put pressure on elevated front-end pricing. As the heatwave continues across Western Europe, pressure continues to be put on power systems. EDF has, as a result, warned that it may turn down generation at three nuclear power stations (nearly 10GW nameplate) in the south due to high river temperatures.
The problematic Nord Stream turbine, which had been trapped in Canadian customs purgatory, was flown to Germany yesterday and – if all goes smoothly – will arrive in Russia around July 24th. With subsequent preparation work expected to take several more days, Nord Stream could return to full flow capacity by the end of the month. That is, if Russia decides to increase flows. As Russian gas trickles in at a rate of just 400GWh/d via all routes each day, it seems unlikely that Nord Stream will resume exports at historic levels of 1,700GWh/d.
Date: Friday, 15 July 2022
UK Winter 22 baseload was 2.9% down in trading yesterday and is a further 3.7% lower in early trading today, eaten away by a lack of willing buyers. Short-term downside appears limited thanks to the Nord Stream drama, which will likely not end on July 21st but be strung out on trivial grounds by the Kremlin in an attempt to shatter European unity. Front-month power and gas sunk lower, effectively wiping out gains made since Monday, with UK baseload closing at £255.5/MWh. Day-ahead power is trading at £274/MWh.
After forecast-beating US inflation data for June and an unexpectedly sharp slump in Chinese economic growth were revealed on consecutive days, Brent crude broke below $100/brl with warnings of recession glowing ever brighter. Even coal markets were under pressure, with API2 front-year coal pulling back from a peak of $285.2/t on Tuesday. In Europe, however, it still appears demand destruction will stem from exceptionally high energy prices before the effects of a broader recession take their toll.
Reflecting the pressures to energy supply on the Continent, data from National Grid shows that the UK has been a net exporter of electricity to the Continent every month since April. This has intensified as a heatwave broils western Europe and undercuts gas storage top ups as flows are diverted to satiate demand for cooling, with Spain facing record daily gas consumption as temperatures touch 44°C across the south. These stresses reach around the world, with Japan planning on restarting four additional nuclear reactors – despite national nuclear anxiety post-Fukushima Daiichi.
Date: Thursday, 14 July 2022
Winter 22 UK baseload jumped to new highs yesterday, closing 4% higher at £449/MWh. The remainder of the forward curve was in a holding pattern at record highs for each of the seasonal contracts. Day ahead is lower today at £272.5/MWh, as is front-month gas which has come down 4.5% to 257p/therm despite 10% gains yesterday. European benchmark carbon is trading steadily at €83.52/tCO2 despite threatening to break upwards to €90/tCO2 on Tuesday.
The EU is in the early stages preparing a seventh package of sanctions against Russia, however it already appears that gas won’t make it in. Despite Russian flows dropping below a tenth of historic levels, with current flows of 400GWh/d being nearly half of what even the UK is exporting to the Continent (770GWh/d), European leaders are still uncomfortable with removing the option entirely. On the Russian side things are more certain: Gazprom yesterday suggested that it was still unable to get hold of its gas turbine stuck in Canada, suggesting delays to the July 21st restart date for Nord Stream are likely.
Reflecting just how tight global energy markets are, China is considering ending its two-year ban on imports of Australian coal. Relations between the previously close partners have been souring for years, with a diplomatic spat over the origin of Covid triggering China’s total block on its principal source of imported coal. Now, however, China fears that high prices in European markets caused by a ban on Russian coal could pull cargoes from its suppliers (such as Indonesia) westwards. Front-year API2 coal close at a record high of $287.5/t on Thursday.
Date: Wednesday, 13 July 2022
After a wobble at the end of last week, UK gas markets recovered on Tuesday as traders weighed the likelihood of a Nord Stream return. UK Winter baseload posted a 4.8% gain to close at a renewed record high of £431/MWh, and the remainder of the forward curve for gas and power showed uniform rises of 1-2%. Day-ahead power is up 13% at £292/MWh as wind power output drops and interconnector flows to France rise amidst the ongoing heatwave. Front-month baseload is trading 4% higher at £261/MWh.
As Europe waits anxiously to see if Nord Stream flows will return on July 21st, gas markets are likely to remain stable at high levels. Further support is being provided by a weakening Euro, which is now hovering near parity with the US dollar, making crucial imports of US LNG more expensive than would otherwise have been the case. A grim energy picture for the Eurozone this Winter is weighing strongly on European economies, although there are substantial headwinds in the US, with inflation data for June expected today forecasted at 8.8%, a 40-year high.
Imports of crude oil to China were at their lowest levels in four years in June, with an 11% year-on-year fall. Covid-lockdowns drove down domestic demand as well as hitting refinery capacity, although prices exceeding $120/brl aided the drop. Lockdowns continue to plague China, with 11 cities under restrictions affecting 115m people. Shanghai, which emerged from a two-month long lockdown just weeks ago, is once again struggling to contain infections – although it is hoped that targeted ultra-local measures will prevent a repeat of metropolis-wide shutdowns.
Date: Tuesday, 12 July 2022
The UK baseload forward curve saw fractional falls of around 1% yesterday, steadying just below record highs set across the board last week. NBP gas was equally static, although gas for Winter delivery fell by 5% to 413p/therm. Bullishness in coal propped up power and gas markets yesterday, with API2 front-year coal trading up 3.5% at $281/t as Indian imports hit a record high thanks to poor domestic production and an expanding economy.
With the stoppage on Nord Stream, Russian gas flows via the three main lines have dropped to their lowest levels in over a decade at just 400GWh/d, just 12% of typical Norwegian exports to Europe. Despite having huge excess capacity via other routes, Gazprom did not lift flows elsewhere as Nord Stream shut down – as expected. This has pushed the German energy regulator to suggest it is unsure whether flows will return, and German industry have begun competing for priority treatment in the event of Winter gas rationing, unthinkable six months ago.
EU-wide gas storage is 62% full, with injection at 0.46% of capacity (5TWh) per day going into Monday. This has been maintained by strong LNG imports to the continent, with carriers focussing on French ports which will see imports of 8.4TWh before the end of the week. French power prices have soared, with day-ahead trading over €450/MWh this week and forward power for delivery in Q4 as high as €900/MWh. This is sucking the air out of the room for surrounding markets, helping to drive German and British power to new highs in response.
Date: Monday, 11 July 2022
After trading as high at £4.53/th on Thursday, NBP Winter gas was down 3.8% to £4.36/th at close on Friday, pulling back slightly after a week of frantic trading. Wind generation in the UK will pick up steeply today before tailing off towards Thursday, putting some pressure on day-ahead baseload, which is trading at £235/MWh. Front month baseload is at £248/MWh after seeing a 17% fall in trading on Friday, offsetting the gains made through out the week.
Nord Stream 1 is expected to enter annual maintenance today for 10 days, ending July 21st. There are worries that the shutdown may extend beyond this, however, as Russia uses it to apply more pressure to a Europe in crisis. Flows on the pipeline had already been slashed by 60% after a turbine sent to Canada for repairs became trapped by sanctions, but over the weekend Canada said it would return the repaired turbine.
Western Europe is facing a major heatwave this week. Cooling demand will be substantially up in France, Spain and Italy – putting pressure on gas-fired power stations to make up the excess. France’s nuclear power stations are running at low output as the rivers used to cool reactors heat up, compounding existing reactor maintenance problems. Despite typically being a reliable exporter of power France is currently importing via interconnectors to the UK and other neighbouring countries, a principal driver in European power markets which are struggling to account for the deficit.
Date: Friday, 8 July 2022
UK power markets continued to spike yesterday, with Winter-22 baseload spiralling to £453/MWh, a 7.7% daily gain and a £74/MWh rise from close last week. With similar escalations across the forward curve coming despite a supply picture which is unchanged for the UK, principal bullish momentum appears to be driven by Continental gas and power markets. French Q4 baseload was trading at €890/MWh yesterday, as the Dutch government suggested it was expecting a cut-off in Russian supply.
As of Wednesday there were 71 coal-carrying dry bulk ships waiting to anchor off the Rhine delta region, nearly three times the five-year average, and coal terminals are currently at full storage capacity. This glut of coal imports underlines the commodity’s recasting as a secure source of energy, contrasted with a volatile gas market. Countries in Central and Eastern Europe, including Germany, have ramped up coal burn as gas supplies ebb, dipping deeper into a far more liquid global market than that of LNG. Carbon prices remain supported at €85/tCO2 by this action.
The French government will fully nationalise EDF, the indebted energy company which commands an 80% share of the French electricity market and operates the country’s fleet of nuclear power stations. Despite already holding an 84% stake in the company, delisting the company will free the government from shareholder accountability. With half of EDF’s 56 French nuclear reactors offline in part due to corrosion issues and next-generation reactors far behind schedule and billions over budget, it’s hard to see how the move will improve France’s ability to slash the highest national power prices in Europe.
Date: Thursday, 7 July 2022
UK power markets spiked further yesterday without a clear driver. Summer 2023 baseload was up 8% to £241.3/MWh at close, tracking gains in Continental gas markets which saw front-year TTF reach €132/MWh (a 22% w-o-w rise). NBP Winter gas has completely outstripped the gains made in March, trading at £4.21/th (£143/MWh), with these moves coming largely due to an enhanced risk premium – despite a supply picture fundamentally unchanged since last fortnight.
Global oil markets have slumped this week, with Brent crude holding just above $100/brl this morning following a weekly fall of more than $10/brl. Trading 20% below the 10-year high set in June, frothing fears of recession have dented the demand outlook. There remains upside potential, however, as global supply is tight amid stalled Iranian nuclear talks and the possibility of halted Caspian Pipeline flows. The Caspian Pipeline, which carries 1% of global oil supply from Kazakhstan to the Black Sea through Russia, has been ordered to suspend operations by a Russian court.
BEIS announced this morning that the fourth round of CfD auctions procured 11GW of capacity. The Contracts for Difference (CfD) scheme insulates renewable generators from market downturns through a strike price, which is paid for by consumers in their monthly energy bills. The auction cleared at record-low prices across the board, including £37.35/MWh for 7GW of offshore wind in five projects, and 2.2GW of solar PV at £45.99/MWh. At current market rates these clearing prices mean the generators would be paying consumers.
Date: Wednesday, 6 July 2022
UK Winter baseload stalled in late trading yesterday as Norwegian oil and gas strikes were halted. This headed-off gains across the board after forward contracts set nauseating new highs on Monday. Day-ahead power responded this morning by falling to £27/MWh to £188/MWh, tracking a 40% fall in day-ahead NBP gas. Front month power is also expected to trade lower today, following a drop of 13% in front month gas, although the final shut down of the first of Hinkley Point B’s reactors has removed 0.41GW of generation from the system.
The spread between TTF and NBP has rocketed to a new record high of €91.52/MWh as the UK expects a surge in wind power production and fears of a gas supply shock reverberate in Continental energy markets. However, concerns will ebb today after the Norwegian government intervened to stop industrial action which could have slashed gas exports by 56%. The UK was expecting complete elimination of Norwegian supply, which accounts for over a quarter of consumption.
LNG imports to the UK have fallen, with just 4 cargoes expected in the coming week totalling about 5TWh. LNG imports to the Continent are slightly better thanks to dearer prices, with TTF retaining an average premium of nearly €14/MWh over Asian JKM in the past month. Gas storage fill has been maintained at a steady rate of over 4TWh/d and EU-wide storage is now 60% full, 7% above the average for this time of year despite having started from a lower base in March.
Date: Tuesday, 5 July 2022
Front-month NBP (UK) gas jumped to 288p/therm yesterday, following major bullishness in the TTF Continental benchmark. Despite appearing decoupled in recent months, fear of a Winter gas shortage in Continental markets is bleeding into UK energy forward contracts, with Winter baseload rising to £376/MWh – vastly outstripping the £309/MWh peak seen during the panicked trading in the wake of Russia’s invasion of Ukraine.
Equinor has begun shutting down fields in the North Sea after some oil and gas workers agreed to go on strike on Monday. After a negotiated wage agreement was voted down by members of the Lederne trade union on Thursday, strikes were set to begin today after further talks failed and are expected to escalate tomorrow. The fallout will trigger the shutdown of seven fields and reduce Norwegian oil and gas output by 13%, with gas flows seeing an impact of around 400GWh/d.
The Netherlands is preparing a tender process to enable willing companies to cut their gas demand. As it does so, it is mired in debate over whether to boost production volumes from the massive Groningen gas field which had been scheduled to close next year after decades of extraction-related earthquakes. Public sentiment has shifted in response to the energy crisis, however, with two-thirds of Groningen residents now supporting increased output – although the government remains firmly opposed. Front-month TTF gas rose 27% week-on-week to €174.25/MWh yesterday.
Date: Monday, 4 July 2022
Friday saw front-season power and gas contracts rise by another 2%, taking the weekly gains for these contracts up to 12% and 14% respectively. Bullish sentiment seems to continue this morning, with the front-month TTF contract up €4 on Friday’s settlement (currently trading at €152).
On Friday, Germany announced a gas bill levy for all consumers. The legislation is expected to be passed by parliament on July 8th, just days before the 10-day Nord Stream 1 maintenance is due to halt flows through the pipeline. If approved, the levy will make gas more expensive for everyone instead of the burden falling only on certain households based on who their gas supplier is.
Putin has signed a decree for Russia to take charge of the Sakhalin-2 project – a major oil and gas project supplying 4% of the global LNG market. The project is 50% owned and operated by Gazprom, and three foreign companies hold significant stakes – Shell (UK), Mitsui (Japan) and Mitsubishi (Japan). According to the decree, the shareholders must ask the Russian government for a stake in the new firm within one month (the Russian government will then decide whether to allow them to keep a stake). Japan depends heavily on imports of LNG, and if flows to Japan are cut, it could push up prices globally as it looks to source LNG elsewhere.
Date: Friday, 1 July 2022
Bullishness continued yesterday with front-season pricing rising another 4% for both power and gas. Uniper (the German energy supplier and one of Gazprom’s biggest European customers) began talks regarding a government bailout as it became the first German company to raise concern over gas availability and prices. Yesterday’s gains set a bullish backdrop as we move into July and ahead of the upcoming maintenance shutdown of Nord Stream 1, and the partial energy industry strike in Norway and France in the coming days.
EU-27 gas storage is 57.92% full – 10% higher than levels this time last year, which were at 47.55%. While storage in Europe and UK continues to fill, it does so at a slower rate than we have been seeing as flows decline through both maintenance and Russian posturing.
Recession fears have started to hit the oil market, which has started to fall – oil prices are on track for a third consecutive week of losses. Yesterday saw OPEC+ agree to stick with its output strategy, which briefly halted the downward movement in the market. However, the group avoided discussing policy from September onwards, and this uncertainty (combined with fears that aggressive rate hikes by the Federal Reserve would lead to a US recession and hamper fuel demand dampened sentiment) saw prices resume downward movements.
Date: Thursday, 30 June 2022
Market prices picked up across the board yesterday, with front-season power and gas prices rising 5% and 6% respectively. Overall, the front-season gas contract has recorded a rise of 43% during the month of June as the outcome to the current geopolitical situation (and its impact on European energy during the coming Winter) remains uncertain.
Yesterday saw markets react to news that Finland and Sweden are preparing to join NATO after Turkey (which has previously blocked the move) agreed to drop its objection on the Nordic countries’ applications. Putin’s response was that Russia would respond in kind if NATO deployed troops and infrastructure in Finland and Sweden after they join NATO – fuelling further concerns over the extent that these tensions have the potential to reach.
This morning, Russian gas flows through Ukraine are stable but Nord Stream’s NEL flows are down 33 GWh/d to 161 GWh/d. The Russian foreign ministry spokeswoman said yesterday that Moscow was not in diplomatic contact with Canada and Germany over repairs to a turbine that Moscow has cited as its reason for cutting gas flows to Europe via a pipeline.
Date: Wednesday, 29 June 2022
While EU carbon prices climbed above €88/tCO2 yesterday EU energy ministers agreed to increase the bloc’s renewables target to 40% of energy consumption by 2030, up from 32% previously. The Russian-inflicted energy crisis drove the decision as the move is legally binding and expected to further incentivise a more rapid transition away from dependency on imported fuels. In addition to the deliberations on oil, G7 nations were evaluating a gas price cap – although the potential repercussions are making European economies reticent to implement them.
Even as the G7 agreed to explore options on a price-cap for Russian oil sold globally, it appeared that such action would be extremely difficult to implement successfully. There are multiple methods to implement the cap, the most promising of which is to withhold insurance on Russian oil tankers – as 95% of the world’s tanker fleet is covered by a group of firms in London. It would rely on Russia agreeing to ship oil at the capped price and India and China falling into line, although they would be incentivised to do so as it would make their businesses extremely competitive.
As Shell announced a 2-week disruption to LNG supply from its floating Prelude facility in NW Australia, the IEA estimated that Europe would have to slash gas usage by 30% in the first quarter of 2023 to prepare for a complete stoppage of Russian flows amid tight global markets. The statement reflected the possibility that Europe could enter winter with storage well below the seasonal average if flows continue at there current restricted rate. Storage top-ups have slowed in the last week to increases of 0.3%/day from 0.5% after Russia cut Nord Stream flows. EU-wide gas storage stands at 57.3%.
Date: Tuesday, 28 June 2022
UK gas and power markets were static yesterday as markets looked for direction after bullish last week. While Brent crude dropped below $110/brl last week as recession alarms rang louder, it has posted a recovery to $115/brl as the UAE stated on Monday that it is near its maximum oil production capacity. This confirmed reports from the G7 summit that Macron had told Biden there was little scope for additional volumes from the Middle East’s major producers.
Several countries in Europe are set to restart idled coal-fired power stations in the coming months, shifting load from gas to coal. These moves are coming despite the looming August 10th EU ban on Russian coal imports, but are driven by warnings from the EU Commission that further disruptions to Russian gas supplies are likely. There are worries that after Nord Stream goes offline for maintenance, ostensibly 11th – 23rd July, flows will not resume – reducing Russian supply to a trickle via Ukraine.
Despite announcements that Germany was accelerating LNG terminal projects in the wake of Russia’s invasion of Ukraine, construction has yet to start on the two projects which had hoped to be operational by the end of the year. Both located in Wilhelmshaven on the North Sea, these LNG handling hubs for floating storage and regasification units have no final investment decisions. Further delays will see Germany remain dependent on LNG import capacity in Belgium and the Netherlands this winter, a possibility it wishes to avoid as it gradually loses its principal supplier, Russia.
Date: Monday, 27 June 2022
Forward contracts for UK power stalled slightly on Friday after a bullish week, uniformly posting fractional falls. Movements in NBP gas markets were more significant, with Winter 2022 and Summer 2023 dropping 2.4% and 3.5% respectively, but they remained well up for the week. Day ahead markets are lower today, with baseload trading down 17% at £154/MWh and NBP gas at 148p/therm. UK baseload for July delivery also dropped, losing 7% at the end of a volatile week.
Following the gathering in Germany over the weekend, the G7 will tomorrow commit to a new package of sanctions including a finalised plan for a price cap on Russian oil. The cap will apply in the interim period before the majority of full embargoes planned by G7 economies come into force towards the end of the year. The intention is to reduce flows of cash to the Kremlin’s war chest at the same time as assuaging energy-price inflation.
EU energy ministers will meet today to discuss joint curbs on gas demand. The meeting will inform an EU Commission plan expected in July which will coordinate preparations for further supply shocks. Meanwhile, France’s finance minister has said that the country is working on energy contingency plans which include identifying companies which can be cut-off from the gas supply without strategic impact.
Date: Friday, 24 June 2022
Action in UK power markets was concentrated on Winter-22 yesterday, which posted a 4.3% increase, closing at £314/MWh – a month-on-month gain of nearly 39%. Broad pessimism on the energy supply front has fuelled steady bullish momentum across the remainder of the forward curve, with Summer-23 and Winter-23 adding 41% and 48% respectively this quarter. The picture isn’t much rosier in spot markets with Day-Ahead baseload trading at £186/MWh, £16/MWh above the final close price for the June forward contract. Forward baseload for July is currently trading at £207/MWh.
EU leaders are meeting today to discuss how Europe would cope without Russian gas. Ahead of the summit statements by EU officials suggested that they expect Russia to turn off the taps, the only uncertainty being when, and Germany warned that a partial industry shutdown over Winter is on the cards if the squeeze on supply continues. To combat record prices, Italian Prime Minister Mario Draghi is pushing for an additional extraordinary meeting in mid-July to discuss a price-cap on Russian gas, although some countries are worried this would exacerbate a bad situation.
EU gas-storage top-ups have slowed this week. While a glut of LNG had kept them buoyant despite the slashed Nord Stream flows, British and Belgian terminals are now seeing around four cargoes a week – down from seven or more in May. EU-wide storage is experiencing additions of 0.26% per day, down from as much as 0.51% earlier this month, and if top-ups continue at the current rate it will not be until the last days of September that the EU hits its 80%-before-October mandate. As a result, further impact to flows could see a squeeze for capacity prior to the end of Summer.
Date: Thursday, 23 June 2022
UK energy markets saw another round of steady gains on Wednesday, with gas seeing uniform bullishness across the forward curve and seeing rises of 2.5-4.5%. Power traced moves in gas, although activity was concentrated on front-end contracts, petering out along the curve. API2 coal stalled across the coal forward curve after it’s week-long frantic rise, although downside remains limited as the supply situation continues to be tight for the foreseeable future.
MEPs yesterday voted for proposals on carbon market reform, including phasing out free permits for industry over the next decade. Also included was a commitment to cut net greenhouse gas emissions by 55% from 1990 levels by 2030, restrictions on financial investor’s access to the market and plans to widen the scheme to the commercial sector from 2025. The deal must now be negotiated with EU countries to produce the final laws. EUAs were flat on the news, trading steady at €82/tCO2.
As a diplomatic tussle plays out over the fate of a Nord Stream turbine sent to Canada for repairs, Germany has moved to phase 2 of it’s three level gas emergency plan. At the ‘alarm’ stage, the federal Government enables utilities to pass on higher prices to consumers – theoretically triggering demand destruction. The turbine, originally manufactured by Siemens in Canada, is being held in limbo as Canadian officials are wary of running afoul of Russian sanctions. Russian gas flows to Europe this morning are low but stable.
Date: Wednesday, 22 June 2022
UK Winter 2022 power and gas continued their ascent yesterday, totting up gains of 3.6% and 4.5% respectively. Summer 2023 baseload reached fresh highs at £181/MWh, as month-ahead power looked to set a steady bullish trend this week after closing at £207.40/MWh yesterday. Day-ahead power was up at £222/MWh thanks to a poor gas supply picture on the Continent. Brent crude is down at $110/brl this morning, a fall of 11% over the last fortnight, on the back of increasing concerns of a global economic slowdown.
Germany and Sweden have both entered the first of their three stage gas emergency plans. These involve providing incentive to industry to cut gas consumption, providing additional credit for utilities to purchase gas and ramping up the capacity of alternative generation – principally coal. The scramble for coal in Europe has pushed year-ahead API2 coal to a record high of $262/t, a weekly increase of 20%. Even at these levels, forecasted gas prices are expected to remain well above the coal-switching price until 2024, illustrating the lack of reprieve for European power markets.
As the UK sees maintenance outages at nuclear facilities in Hartlepool and Heysham affecting 1.2GW of supply, interconnector flows from France remain throttled as the nuclear powerhouse continues to suffer unplanned shutdowns. Around half of the 56-strong French nuclear reactor fleet is offline, with 12 affected by the corrosion issues reported by EDF earlier this year. It is expected that these problems could take years to resolve, and have caused the amount of atomic energy in France’s power mix to be cut from 69% to 59%, the slack largely taken up by gas generation.
Date: Tuesday, 21 June 2022
UK energy markets were fairly static yesterday, waiting for further developments on the Russian supply front. The UK has been a price taker for forward contracts, with UK markets following moves in European ones principally due to competition in global LNG markets. In contrast, UK spot markets have seen lower prices as high UKCS output and LNG imports have been sustained well into the Summer season, but as LNG cargoes start to thin-out spot prices have risen to meet the near-term forward contracts.
Freeport LNG, one of the largest LNG export facilities in the US, was initially expected to shut for at least three weeks following an explosion on 8 June. The restart of the plant has been pushed back until the start of October, a potential impact of 64-74 cargoes, worth 72TWh. The plant constitutes 20% of US LNG processing, key to European gas supplies this winter as the US is now Europe’s principal supplier of LNG.
EU27 gas storage is now above 54%, and if fill continues at the current rate it will be 80% full before September. Despite the squeeze on Russian supply, flows into storage remain stable at c. 5TWh/d, partly thanks to a glut of LNG being received at Belgian ports. Ever more uncertainty hangs over gas supplies however, with Russian flows reduced to just 1.2TWh/d and growing expectations that they could be reduced to zero before the end of the year.
Date: Monday, 20 June 2022
Winter 2022 UK baseload fell 2.5% on Friday, with similar moves recorded across the power forward curve. NBP gas retreated further, with Winter 2022 dropping nearly 8% on Friday to close at 290p/therm after spiking above 310p/therm mid-week. Day-ahead baseload is at £211/MWh, a 65% increase on Friday’s level thanks to poor fundamentals, while front-month power is trading at £217/MWh – a marked drop from panicked highs of nearly £260/MWh last Wednesday.
As North West Europe braces for another warm week, the wind generation forecast remains stubbornly low. These factors are putting additional pressure on strained gas supplies, as Nord Stream flows are constricted at just 40% of capacity. This has caused France to see it’s small supply (50-100 GWh/d) of Russian gas via Germany suspended, with Poland and Czechia seeing similarly sized cuts in their flows from Germany. The broad outlook for this week is slightly bullish.
Asian LNG spot prices jumped last week, tracking gains in European gas. JKM rose from €76.44/MWh on Wednesday to close 45% up at €110/MWh at the end of the week, staying €14/MWh short of TTF. Europe will be relying on LNG imports this Summer as Russian flows are squeezed further; but recognising that LNG alone cannot plug the gap, Germany announced on Sunday it would be increasing reliance on coal-fired generation (but would provide €15bn in credit for additional gas purchasing). 2023 API2 coal was up 11% at the end of last week at $233.2/t.
Date: Friday, 17 June 2022
Front-end contracts for UK power climbed further yesterday amid a renewed gas supply crisis on the Continent. Winter 22 baseload saw a further 10% rise to close at £288/MWh, tracking a 12% gain in Winter 22 gas which closed at 351p/therm – just 22p/therm below record highs set in the wake of the start of the Ukraine war in March. 2023 contracts also continue to reach new heights, with expectations of supply disruption being projected further into the future.
As Russian supply to the Continent was slashed yesterday the TTF-NBP spread spiked to a record high of €80.64/MWh, reflecting a European gas market in shock. Russia has indicated that further delays to ‘receiving parts for repairs’ on the pipeline could lead to all flows being suspended. Nord Stream flows are down a further 5% this morning, with Czechia and Slovakia – home to a key interconnector for Russian gas flows via Ukraine – reporting a 30% drop in receipts. Long cited as potential fallout from the sanction regime, Europe could be experiencing complete disconnection from Russian gas flows.
The spread between gas and coal prices in Europe has narrowed once again despite an 8% jump in coal prices. This is partly driven by surging power demand in Mediterranean states, with Spain setting records for power demand in the midst of an early summer heatwave. On the back of API2 coal prices remaining stubbornly above $200/t, Greece has increased coal production targets by 50% – indicative of trends towards increased coal generation across the EU. This is providing strong support for the carbon market, currently trading at €83/tCO2.
Date: Thursday, 16 June 2022
UK Winter 2022 baseload jumped to £287.55/MWh yesterday amid drops in gas supply to the continent. Although big moves were limited to the front end, steady bullishness has pushed the rest of the power forward curve to record highs on every season, with Summer 2023 baseload closing in on £180/MWh, after a 4.1% gain yesterday. Day ahead baseload is trading at £233/MWh, and front-month closed at £225/MWh yesterday amid renewed supply worries as the Freeport closure was extended and now estimated to cause 40 missed LNG cargoes, worth around 44TWh of gas (1.1% of annual European gas consumption).
Gazprom has cut its supply to Italy by 15%, with similar cuts reported in Austria and Czechia, with flows simultaneously reduced on the Nord Stream pipeline to 700GWh/d – a 61% drop compared to last week. Gazprom attributed the Nord Stream cut to maintenance, but Germany’s economy minister dismissed the explanation, instead describing the fall as a strategy to “unsettle and drive-up prices”. Front-month TTF was up at €130/MWh this morning compared to €84/MWh on Monday, amid expectations that this could be the start of prolonged additional restrictions on flows of Russian gas.
A meltdown in bond markets has raised the possibility of a new Eurozone crisis. A sell-off in Italian Government debt, seen as a high-risk asset, has been particularly acute – increasing yields and putting pressure on the highly indebted Mediterranean country. Eurozone inflation hit 8.1% in May, and while the US Fed and the UK’s BoE hike combatted this by hiking interest rates, the ECB has yet to take action for fear of increasing the cost of PIGS’ (Portugal, Italy, Greece & Spain) debt and raising the spectre of default.
Date: Wednesday, 15 June 2022
Front-Month (FM) UK baseload rose £27/MWh in trading yesterday to close at £190.4/MWh, following a 22% jump in FM NBP gas. NW Europe benchmark FM TTF gas also saw strong gains of 15% driven by further falls in Nord Stream flows to 1,050GWh/d (a total drop of 800GWh/d), due to repairs on the pipeline, coinciding with a period of poor wind-power generation and Norwegian platform maintenance. Russian flows via Ukraine remain low at 400GWh/d (vs. a winter average of over 800GWh/d).
The UK Government is considering ending the current pricing system for British power. The Times reported on Monday that ministers are drafting plans to sever the link between gas and power markets, with a reform proposal expected in the coming weeks. Power markets in much of Europe function based on a marginal cost pricing system; all producers sell their energy at the price of the most expensive unit of power – currently gas-fired generation. Spain and Portugal recently diverged from this system, however, by introducing a cap on the price of gas fed to power stations.
The gas-feed price cap, expected to average €50/MWh this financial year, was possible as the Iberian nations import very little of their gas supply from Russia, instead receiving reliable pipeline flows from Algeria and having large LNG regasification capacity. Additionally, both nations generate a significant portion of their power from renewable sources. These factors bear strong similarity to the UK, which produces much of it’s own gas and receives most of the remainder from Norwegian fields connected directly to the UK grid.
Date: Tuesday, 14 June 2022
UK energy markets were flat yesterday. Summer 2023 baseload is at £169.69/MWh, a week on week increase of £0.01/MWh, while Winter 2022 baseload has seen a monthly decline of £0.10/MWh to £244.17/MWh. 2023 contracts and beyond remain at record highs however, as uncertainty continues to cloud the supply picture for the front-end. Day-ahead and month-ahead UK baseload remain in lockstep at £164.5/MWh and £162.6/MWh respectively, highlighting the reduced risk premium on near term forwards (until September 2022).
As equity and bond markets roil, global commodities have held firm and largely continue to see bullish momentum. Most importantly for the power sector, global LNG and coal markets are extremely tight with each commodity generally supporting prices for the other. Recent declines in front-year API2 coal from highs of $260/t to $216/t reflects a European gas market which had declined but remains steady, with front-year TTF trading at the €80/MWh level. Both these markets are expected to remain strongly supported at least until the end of Winter 2022.
Nord Stream 1 maintenance is expected for July 11 2021, when flows will be reduced to zero and European gas storage levels are broadly expected to remain static. Front month TTF hasn’t responded strongly to the announcement, remaining level at €84/MWh. Despite a 7.2% monthly fall in TTF prices, it still commands a €8.68/MWh premium to the Japan-Korea Marker (JKM), which showed no strong response to the Freeport explosion – despite the US typically being a prominent LNG supplier for Asia.
Date: Monday, 13 June 2022
Mirroring last week, the wind power generation forecast is expected to remain low until Friday, when it will pick up sharply and remain strong over the weekend. Additionally, the UK is expected to bake in high temperatures this week, cutting gas demand across the country. Front-month baseload is trading at £159/MWh, level with day-ahead and marking a re-convergence of the two contracts for the first time since the start of May, following a month of low spot prices.
After renewed lockdown measures were imposed on Shanghai last week, Beijing has seen millions tested over the weekend in relation to a Covid outbreak stemming from a bar. The local government reported 51 cases, and indicated that this outbreak was proving more difficult to control than previous ones. Business sentiment in China has dived as it remains largely cut-off from the outside world thanks to a zero-Covid policy, which is unlikely to shift soon, ringing further alarm bells for the global economy. Brent crude was down $2/brl at $120/brl in response.
Zeebrugge, Belgium’s principal LNG port, is expecting 7 LNG cargoes from Russia by Thursday. The sudden rush of cargoes may reflect gas which previously transited the pipeline network in Ukraine being redirected to the Yamal LNG liquefaction facility in Russian Arctic. Much of the ca. 7.6 TWh regas volume will be bound for NW Europe’s TTF hub, plugging the current gap caused by a 20% drop in Norwegian flows (Summer maintenance) and decreased Russian flows via Ukraine and Nord Stream.
Date: Friday, 10 June 2022
UK front-month gas was up 28% at one point yesterday as news of the Freeport explosion emerged, but closed just 16% up at 151p/therm. Front-month baseload followed with a 6.1% gain to finish trading at £161.7/MWh. Near-term power prices have remained supported in part thanks to high carbon prices, with UKAs commanding a widening premium to equivalent EUAs, currently standing at 18% or €15/tCO2. Current UKA prices of £82/tCO2 incur a ca. £37/MWh penalty for a typical CCGT power station.
Day-ahead NBP gas fell 86% to just 12p/therm yesterday as the IUK pipeline, which links to the Continent, faced an unplanned outage which cut flows by 40% – pushing the spread between Continental TTF and UK NBP gas to a record high of €77.78/MWh yesterday. There are headwinds on the horizon however, as 11% of Norway offshore platform workers have threatened to strike and an estimated minimum of 13-15 LNG cargoes (equivalent to 14.5TWh of gas, or 1.32% of European gas storage capacity) have been foregone resulting from the Freeport explosion.
Parts of Shanghai have been subject to renewed Covid lockdown efforts affecting 2.7 million people, just a week after previous restrictions were eased. The new containment measures emphasise a lack of change in China’s status quo, where a national zero-Covid policy is being maintained despite low-quality vaccines and a globally endemic virus. It is expected that China will see rolling lockdowns until the policy is abandoned. Brent crude dipped $1.50 to $122.2/brl on the news.
Date: Thursday, 9 June 2022
The UK baseload forward curve was essentially flat yesterday in an absence of immediate drivers. Front-end power could respond to the Freeport LNG shutdown (more on this below), although beyond Winter 22 little action is expected today. Seasons Summer 23 onwards remain at or near record highs, with Summer 23 and Winter 23 trading at £169/MWh and £187/MWh respectively. Day-ahead is relatively low this morning at £120/MWh.
Freeport LNG, one of the largest LNG export facilities in the US, will shut for at least three weeks following an explosion. The plant constitutes 20% of US LNG processing, key to European gas supply, and 3.2% of global capacity. Winter 22 gas jumped 8% this morning in response as the short term implications include lower flows to European gas storage. The US has supplied 51.7% of UK LNG imports in the last six months.
The European Parliament yesterday failed to pass key reforms to the EU ETS, including bringing forward the introduction of a carbon import tariff and market access restrictions for non-compliance (often speculative) entities. The proposal was voted down by conservative sceptics and green legislators alike for going too far and not far enough respectively. This could delay reform implementation until 2024, and is a bearish driver for carbon in the mid-term. EU Dec-22 permits were trading down 7.6% week-on-week yesterday.
Date: Wednesday, 8 June 2022
Markets were looking for direction yesterday as short term concerns continue to fade, with UK baseload falling 1.5-2% across the forward curve. The two principal drivers are the ongoing fallout from Russia’s war in Ukraine, the risks of which are largely priced in, and building fears of a global economic downturn in the next year. Finally, there is a crunch vote expected today on revision to the EU ETS scheme, the result of which could produce bearish outcomes.
For the first time since July last year, the Continental TTF gas benchmark is level with the coal-switching price. European countries had maximised coal-fired capacity as the cheaper energy source, but inflating coal prices (caused by rising Asian demand) has made the fuel less competitive in Europe, whilst gas has seen a corresponding fall from the panicked heights of March.
Continued strong LNG flows (the UK expects 7,470GWh this week alone – 6 day’s worth of current demand) have driven high-levels of storage top-ups, abating anxieties over a Winter supply shock. Additionally, the rouble payments saga is widely seen to have finished, with those companies which refused to pay having been cut-off and the remainder having acceded to Gazprombank’s euro-rouble switch scheme.
Date: Tuesday, 7 June 2022
Action in UK energy markets yesterday was concentrated in Summer 23 and beyond in the gas forward curve, with 2023 seasons rising 3.5% and 2024 seasons 5%, returning them close to the record high prices set six weeks ago. Action in power was more muted, although Winter 23 baseload edged to a record high close for that contract of £190.62/MWh. Winter 22 baseload continues to oscillate in the £220-250/MWh range as markets try to decide if the worst of the supply shocks are over.
The UK Government is in talks with Centrica to partially re-open Rough, the UK’s largest gas storage facility, within the next few months. If fully operational, the site would triple Britain’s gas storage capacity. Rough was controversially closed in 2017 as it became uneconomic for Centrica to refurbish the aged facility and the Government was unwilling to lend subsidy. Britain currently has enough gas storage capacity to last around 6 winter days. Similarly gas-dependent economies such as the Netherlands and Germany have 11x and 19x the UK’s gas storage capacity respectively.
Norwegian platforms are about to enter a period of heavy maintenance, including the major fields of Kollsnes and Troll, which will see an 1,800 GWh/d impact to flows from tomorrow, easing over the following days. Despite being an annual occurrence, the major reduction in gas exports from Europe’s largest supplier comes at a time when Russian flows are at their lowest level in many years – and subject to further reductions as European buyers wind down Gazprom contracts.
Date: Monday, 6 June 2022
Winter 22 power and gas prices were down 2.3% and 3.8% last week, while the rest of the forward curve was largely static. Oil prices continued their steady gain last week with Brent crude consolidating above $120/brl, and markets looking bullish as a US-Iran nuclear deal slips out of reach – further delaying additional Iranian supply – and un-divertible Europe-bound Russian oil cargoes will reduce global supply by 1 million bpd.
The fundamentals outlook this week is stronger than last, with wind power generation forecast to climb steeply from Thursday until the end of the week. Temperatures will return above the seasonal average tomorrow, which will put downwards pressure on NBP day-ahead gas, which was trading as high as 148p/therm last week. Day ahead baseload power is up at £161/MWh from £118/MWh.
EU carbon prices were up 10% in the fortnight to Friday ahead of four days of European Parliament debates on carbon market reform starting today. Proposals under consideration include bringing forward the debut of the ‘carbon border adjustment mechanism’, a carbon tariff that would reduce the off-shoring of manufacturing to avoid emissions permitting. This could provide underlying bullishness, and restrict market access for non-compliance entities (i.e. those which don’t use permits, such as investors) to reduce speculation and volatility.
Date: Wednesday, 1 June 2022
Backend UK gas contracts climbed up to 4.5% yesterday as Russia cut flows to Europe. Price action in power markets remained subdued, however, with Summer 2023 baseload making the largest jump at 2.9% to £168.40/MWh. API2 coal for delivery in 2023 jumped 6.1% to $242/t, anticipating higher thermal coal demand on the back of reduced Russian gas flows in the mid to long term.
By the end of the day yesterday three countries saw their gas imports from Russia reduced after refusing to pay in roubles – these were the Netherlands (Gasterra), Denmark (Orsted) and Germany (Shell Europe). This accounted for a drop in gas flows on the Nord Stream pipeline, normally stable at its 1750GWh/d capacity, to 1577GWh/d yesterday. A total of six companies have now terminated contracts with Gazprom, worth 15% of Europe’s long-term contract volumes.
The head of the IEA warned that fuel shortages are looming for Europe this summer, with the current crisis bringing a more severe and prolonged shock than that caused by the oil embargoes of the 1970s. Nonetheless, the immediate jolt from the EU’s embargo on Russian seaborne oil quickly abated as many tankers were already subject to ‘self-sanctioning’ in much of the West, and so short-term supply implications are limited. Globally the embargo may not notably tighten oil markets – overall Russian exports have risen since the start of the war, with displaced cargoes frequently heading for India. Brent crude was trading at $117/brl this morning.
Date: Tuesday, 31 May 2022
Brent crude has jumped to $124/brl this morning after the EU agreed to a ban on Russian oil. UK energy markets are quiet, with Winter 2022 gaining 0.02% yesterday – which may set the pattern for trading today and tomorrow. The European energy complex could see slight bullishness today, falling out of the oil ban, but overall the gas supply picture remains robust – dampening price action.
EU leaders have backed a partial embargo on Russian oil, immediately covering an estimated 2/3rds of previous imports. The decision will be voted through on Wednesday alongside the remainder of the 6th sanctions package which includes cutting-off Sberbank, Russia’s largest bank, from SWIFT. The deal was cinched after EU leaders acceded to Hungary’s demand over allowing continued imports via the Druzhba pipeline which provides a majority of its supply. It is expected that 90% of Russian oil imports to the bloc will be cut by the end of 2022, the remainder being exempt.
Russian gas transiting Ukraine, one of the three main routes for Russian pipeline gas to Western Europe, could see further falls in volume with Ukraine’s state oil and gas company Naftogaz over the weekend accusing Gazprom of underpaying transit fees for June. Flows via Ukraine, typically well over 800GWh/d before the war, have fallen to around 400GWh/d since. Russian pipeline volumes have further declined recently as some traders refuse rouble payments, as Dutch Gasterra did yesterday (covering supplies of ~110GWh/d). Month-ahead TTF gas was up 4% at €90.20/MWh in response.
Date: Monday, 30 May 2022
Front end UK power saw small gains of 2-3% on Friday, following moves in gas, resulting in a net gain of 11% for Winter 22 baseload over the course of the week. UK carbon prices were flat, posting a weekly gain of just £2/tCO2. Brent crude was trading above $120/brl this morning, returning to the market peak which occurred as Russia began its invasion of Ukraine – driven by an expectation that the EU may be able to get its embargo over the line.
India is projected to face an increasingly intense shortage of thermal coal in the summer quarter. Indian states are under pressure to award large contracts for coal imports to supplement domestic supply, but to-date only one has done so thanks to high global prices and a reticence to increase costs for consumers. India is the world’s second largest consumer of coal, but typically comprehensive domestic supply is expected to produce a shortfall of 21.5% over summer, potentially putting increased pressure on tight global coal markets.
The spread between TTF and NBP has dropped to €24.32/MWh, as TTF has remained level while NBP spot has climbed from two-year lows as the UK endures an abrupt cool spell. The short-term outlook is bearish on both fronts, however, as maintenance on Norwegian platforms has eased. Large maintenance shutdowns will resume from June 8th, although softer fundamentals (particularly warming weather) will reduce the impact of reduced flows.
Date: Friday, 27 May 2022
UK power and gas markets traded flat across the forward curve yesterday, however day-ahead markets continued to slide after spiking earlier in the week. Day-ahead baseload was £90/MWh this morning, down from £138/MWh earlier this week, reflecting warm windy conditions. The Continental supply outlook is currently stable, although maintenance on Norwegian fields is reducing exports by around 10% from peak flows last month.
Japan will restart nuclear power stations idled in the aftermath of the Fukushima disaster. PM Kishida reaffirmed that the government is not considering replacement of existing facilities but that the move would help stabilise energy supply. Until 2022 Japan was the world’s largest importer of LNG, superseded by China, but rapidly increasing competition from Europe has put pressure on its security of supply.
The UK is to impose a 25% ‘windfall’ tax on earnings from North Sea oil and gas production, expected to raise £5bn in the coming year, with the Chancellor Rishi Sunak citing extra-ordinary profits created by a global market as opposed to innovation or efficiency. Funds raised will contribute to a £400 energy bill credit for all households, and an additional £650 cost-of-living grant for 8 million low-income households. Sunak insisted the grants will have a limited impact on inflation.
Date: Thursday, 26 May 2022
UK energy markets gained again slightly yesterday, retracing some of the losses made in the past fortnight. Increases were largest in the front end, with Winter 22 gas jumping 4.6% – although moves in power were more muted. The lack of new major bullish drivers means that current upward momentum is limited, and rising evidence of demand destruction amongst domestic consumers (which will be compounded by Ofgem’s 40% increase in the price cap for Winter) could introduce bearishness in front seasons.
Continental gas markets have remained stable over the last fortnight due to broad expectations that Gazprom wouldn’t cut-off gas supply to any major European customer regardless of their rouble payments position. Poland, Bulgaria and Finland were minor consumers of Russian gas and the Baltic states unilaterally ended imports at the start of April, effectively leaving few other EU targets for Russia to pressure with gas supply cuts. Punctuating these expectations, Greece’s largest gas importer made payments in euros earlier this week without retaliation from Russia.
Fundamentals will soften going into next week, as temperatures dive and wind power generation falls. This is a blip, however, with forecast expected to return to 3°C above the average in early June – helping drive rapid flows into gas storage across Europe, with EU-wide levels at 44% of capacity compared to 35% at this time last year. It remains to be seen if this pace of fill can be sustained over summer, with a murky supply outlook clouding forecasts.
Date: Wednesday, 25 May 2022
UK gas and power markets posted gains of 2-3% across the forward curve yesterday, while day-ahead baseload is down £9.50/MWh to £112/MWh. Front-end API2 coal has fallen by as much as 14% in the past two days, following softer gas prices in Europe after forward contracts dropped over the past fortnight. Asian coal prices remain firm however, reflecting a continued tight global market.
S&P Global’s May flash Composite PMI for the UK released yesterday is down at 51.8 from 57.6 in April, a fall greater than any seen pre-Covid. Such a slowdown in business activity, previously robust, was far worse than all forecasts and has intensified fears of an imminent recession. This is a rising driver in energy markets, and will put increasing bearish pressure on contracts W22 to W23.
TTF spot prices have tumbled over the past week as the risk premium has fallen on stable supply, narrowing the spread to NBP from €74/MWh to below €30/MWh earlier this week. A weakening LNG roster has helped this, as strengthening Asian demand – due to warming weather and an expected easing of China’s lockdowns – has begun cutting into deliveries, with only 24 of the 30 originally scheduled cargoes in Europe unloaded last week. TTF’s premium over the Japan-Korea Marker (JKM) has narrowed to below €12/MWh, down from €29.45/MWh a week ago.
Date: Tuesday, 24 May 2022
UK gas and power forwards dipped by 2-3.5% yesterday following stronger fundamentals and stable near-term gas supplies, with Gazprom stating that half of its 54 clients have opened accounts with Gazprombank to facilitate rouble payments – including Germany and Italy. A choppy outlook for Norwegian exports is hampering downside however, with summer maintenance expected to persistently restrict output by around 10%.
EU Dec-22 carbon prices have dropped 15% in the last week, eliminating gains made since the start of the month. Falls have been driven by the European Commission’s (EC) intention to sell 250 million additional EUAs to help fund its shift away from Russian energy. This represents an increase of 40% on the number of permits originally planned to be auctioned this year. UKAs have followed EUAs, sinking 10% to £80.10/tCO2 or about £36/MWh for a CCGT.
The EC announced yesterday that the EU will begin jointly procuring gas before winter. This would be voluntary, but participants will pool demand and coordinate infrastructure. The EU’s energy policy chief suggested that this strategy would make it possible to unlock volumes not currently on the global market, citing the US-EU LNG deal from March for 15bcm (158TWh) this year.
Date: Monday, 23 May 2022
UK gas and power forwards made only small moves on Friday, with 1-2% losses in the front-end offset by 1-2% gains from Winter 2023 onwards. Wind power generation is expected to be high for much of this week, offsetting gas for power demand, while temperatures will remain above the seasonal average dampening domestic gas consumption. Combined with a strong LNG arrival schedule, this may throw a renewed dampener on day-ahead markets, which had rebounded last week.
As expected, Russia halted flows of natural gas to Finland on Saturday. Helsinki had previously refused to comply with Putin’s rouble payments demand, although the cut-off also coincided with Finland’s announcement of its application for membership of NATO. To combat lost supplies of 37GWh/d, Finland has become the latest European country to charter a floating LNG regasification facility.
Despite initial expectations that an EU embargo on Russian oil would be passed easily, after nearly three weeks of negotiation the package looks no closer to being approved largely thanks to opposition from Hungary. Germany indicated this morning that it would support an EU26 embargo (EU27 less Hungary), although there isn’t yet a precedent in this approach. Brent crude cooled over the last week, and is currently trading down 4% at $110/Brl.
Date: Friday, 20 May 2022
NBP and TTF gas contracts have continued yesterday’s losses this morning as Norwegian exports rose after an early outage, whilst Russian gas flows have also remained stable; this has allowed European storage to remain injecting at around 0.4% per day, currently at 41.2%. NBP Winter-22 is at 232p/th after closing yesterday at 237p/th, whilst contracts for this weekend remain far lower at 85p/th.
Oil prices continue to fluctuate around the $110/brl mark, with investors worried about weakening economic growth hitting demand balancing a potential EU Russian oil ban. This morning has seen some early losses Brent Crude futures slipped 0.5% to $111.45/brl.
Following on from Russia cutting gas supplies to Bulgaria and Poland last month, German big business is putting together a rationing strategy amid fears that Russia could cut their supplies. Gasum, Finland’s state-owned energy provider has today announced that Russia will be cut off as of Saturday, following increased tensions from their bid to join NATO, providing further nervousness in Germany that they could be next.
Date: Thursday, 19 May 2022
As expected, the EU yesterday unveiled their 5-year plan to wean off Russian oil and gas imports. The plan requires an initial €210bn investment, which includes: €86bn for renewable energy, €27bn for hydrogen infrastructure, €29bn for power grids, €56bn for energy saving and heat pumps and €10bn for gas and LNG projects, which will help to diversify any imports. A further €90bn is then expected to be needed in the years up to 2030.
UK power forwards slipped yesterday, with June-22 closing at £176.74/MWh, though prices have remained around this mark for the last week with no significant changes coming out of Russia/ Ukraine. Day ahead prices continue to trade far lower at around £120/MWh with minimal short term supply fears.
Brent crude futures are currently trading at around $110/brl, falling from $113/brl yesterday morning with fears of demand destruction over rising inflation and China’s zero Covid policy. Prices remain high however as an EU ban on all Russian oil imports loom, which would trigger a further increase.
Date: Wednesday, 18 May 2022
Winter-22 UK gas and power markets posted marginal increases to close 2.4% and 3.6% higher respectively, with a weaker supply from UK LNG terminals and stronger demand expected. Front month Dutch TTF gas prices also rose on Tuesday afternoon, with the European Commission’s announcement that EU companies can still pay for Russian Gas in euros but that they are not permitted to open a roubles account with Gazprombank, stoking fears over supply disruption.
The European Commission is today set to announce its plan to end its reliance on Russian oil and gas by 2027. Brussels expects the strategy to require up to €210bn in extra investment, which the EU will support by freeing up more money from its Covid-19 recovery fund. The plan will outline 3 main areas: the faster roll out of renewable energy (Germany, Belgium, the Netherlands, and Denmark are set to announce a plan to build at least 150 GW offshore wind capacity in the North Sea by 2050), increasing efforts to reduce demand/increase efficiency, and switching any imports to other nations.
European gas storage injection is well underway, rebuilding from its Winter low at a record rate as buyers are outbidding competitors from Asia – future contracts or North-West Europe delivery are trading over 45% higher than for deliveries to North-East Asia. Storage levels have risen by 151 TWh since the start of April, with stocks currently at 450 TWh, which is now in line with the previous 10-year average.
Date: Tuesday, 17 May 2022
Little gas was booked for June delivery in yesterday’s monthly capacity auctions (perhaps unsurprising as this has been rapidly declining over recent months). The European market didn’t react to this with the TTF showing a discount across the curve on the day by around 4%. UK NBP saw an increase for June – but later dated contracts showed a discount.
French power company Engie has announced this morning that it has agreed with Gazprom on a scheme to pay for Russian gas in roubles. Engie has reported that it has agreed on a solution in line with both companies’ expectations in terms of currencies and sanctions, but has declined to comment on whether this meant the utility has opened (or will open) an account with Gazprombank.
EU foreign ministers were yesterday unable to convince Budapest to lift its veto of a proposed ban on Russian oil imports, with a ban requiring approval from all EU nations. With an import ban (which would tighten global supply) yet to materialise, we could see some downward pressure on oil prices.
Date: Monday, 16 May 2022
Dutch TTF gas prices fell this morning as the EU commission confirmed that EU companies can pay for Russian gas with roubles, with June-22 falling by €7.40/MWh to €92.40/MWh. If a transaction is deemed complete as soon as payment is made in euros to Gazprombank, the payment can then be converted to roubles after this as the purchaser is not directly dealing with the Russian Central Bank.
Russian energy supplier RAO Nordic confirmed on Friday that power exports to Finland will be suspended from 1 am local time on Saturday as it has not been paid for previous deliveries. It is thought that this could be in retaliation to Finland’s desire to join NATO, with President Sauli Niinisto confirming on Sunday that his country will apply for membership to the alliance. (Finland has been of neutral status for the past 200 years). Russian imports account for around 10% of Finland’s total power consumption.
Oil prices have remained high but fairly stable, with Brent Crude futures slipping 28 cents this morning to $111/37/brl. Widespread lockdowns in China as a consequence of the nation’s continued zero-Covid policy have dampened demand, and along with weak economic data from the country there are fears of a global recession. The EU, however, is still hopeful of imposing a ban on all Russian crude imports, keeping prices high; Lithuania has stated that the ban by the bloc is “being held hostage by one member state”, widely thought to be Hungary.
Date: Friday, 13 May 2022
Front-end UK gas rose by 10% yesterday, pushing Winter 22 baseload up 8% to £254/MWh as a heightening of fears over the stability of Russian supplies hit markets. The remainder of the baseload forward curve gained 2%, and day-ahead rose 8% but closed at £82/MWh – far below the £156/MWh final trading price for May baseload two weeks ago.
Gazprom stated yesterday that it would no longer be able to ship gas to Europe using the Yamal-Europe pipeline, one of the three main routes for Russian gas exports to Europe. Although westbound flows on Yamal-Europe have been rare in the last six months and the current supply situation is essentially unchanged, a formal renouncement of the pipeline bodes poorly for Russian gas import volumes in the short to mid-term. Flows via Nord Stream are flat, and flows via Ukraine are up 50% to 946GWh/d.
Hammerfest, Equinor’s Arctic LNG terminal, is due to come back online on Tuesday after 20 months of maintenance – the result of a fire doused using seawater. Its single ‘train’ (gas processing line) is capable of producing 59TWh of gas a year, and will increase Norway’s gas exports by more than 4% on average – cementing its position as the Continent’s largest supplier.
Date: Thursday, 12 May 2022
UK gas and power markets were largely static again yesterday, although bullish action is expected today with gas-supply related announcements from Russia. Day-ahead UK baseload continues to trade well below £100/MWh at £82/MWh. The discount on NBP gas compared to TTF remains at record highs of €73.80, fuelling high exports to the Continent, and the continuing strength of TTF means it commands a €17.80/MWh premium over the Japan-Korea Marker – attracting LNG cargoes westward.
Continental gas markets largely shed concerns over the Ukrainian restrictions of Russian flows in trading yesterday, with front-month TTF gas down 10% week-on-week. This has been aided by expectations that payments for Russian gas will be able to continue through a workaround, easing tensions over what could have been a supply shock in the coming weeks as payments came due. However, in an announcement this morning Russia stated it is sanctioning European-based Gazprom subsidiaries which own and operate gas infrastructure, with the immediate implications for supply unclear.
The IEA has said in its monthly oil report that lower Russian exports will not create a supply shortfall, as rising output from OPEC and ongoing lockdowns across China dampen demand. More broadly, markets fear a global recession could douse the commodity boom, a rising driver in energy markets. NIESR, an economic think-tank in London, said yesterday Britain is on course to enter a technical recession (two consecutive quarters of contraction) in the second half of this year.
Date: Wednesday, 11 May 2022
Front-end UK gas was up 4% yesterday as Russian gas flows via Ukraine were partly suspended, although day-ahead power remains below £80/MWh. The remainder of the forward curve for gas and power was largely flat, with only Brent crude seeing a notable decline of 3.3% to $102.46/brl as the EU once again failed to pass it’s ban on Russian oil imports.
The Ukrainian gas transmission system operator GTSOU has said that it would suspend flows of Russian gas through a transit point in the Luhansk region controlled by Russian forces today. GSTOU declared force majeure after raising concerns that equipment at the interconnector was being tampered with and gas withdrawn. GTSOU suggested it would transfer capacity to a Ukrainian-controlled entry point, although Gazprom has stated that this is “technically impossible”. Russian flows via Ukraine are down at 717GWh/d this morning compared to a stable level of 993GWh/d this month.
The Indian government has approved regulatory changes which make it possible for generators to pass through higher fuel costs. The inability to do so in the past placed an artificial constraint on generation capacity during periods of high global coal prices, which has become particularly acute this year. Generators can now dip into global markets to top-up supply of thermal coal, although they will largely chase lower grades compared to European demand for high-energy grades. API2 coal for 2023 delivery is trading at $232/t, up 156% this year.
Date: Tuesday, 10 May 2022
Prompt gas and power plummeted yesterday – a strong LNG arrival schedule, ongoing warmer than average weather, and an uptick in wind generation output across the UK combined to suppress demand for gas. UK day-ahead baseload was trading as low as £70/MWh this morning, with NBP gas at a 2-year low of 30p/therm. Front-month power fell by just over 2%, reflecting ongoing concerns over security of gas supplies, with fears of a Russian gas cut off made real by a report that Germany is preparing a crisis plan for such a situation.
The LNG import roster for the UK is slightly weaker than a fortnight ago but very strong for May, with 6 cargoes expected in the coming 10 days totalling 7,100GWh or 4.5 days of current demand. With the UK taking a large number of cargoes, the TTF-NBP spread set another record high of €74/MWh of gas yesterday morning – continuing a six-week long decoupling between Continental and UK gas prices.
Brent crude fell by $6 to $106/brl yesterday after Brussels shelved plans to prevent the EU shipping industry from transporting Russian oil, following pressure from Greece and Malta. It is thought that after a wider agreement among the G7 stalled, shipping from other Western states would have undermined the EU ban. The European Commission still aims to ban EU companies from providing insurance on the shipping of Russian oil, essentially an embargo by other means.
Date: Monday, 9 May 2022
UK energy markets saw fractional losses on Friday as markets took a breather after a bullish week, which saw losses incurred in the last week of April recovered, and in the case of Winter 2023 gas and power exceeded. Winter 2023 baseload now trades above £183/MWh, a month-on-month increase of almost £50/MWh, compared to £237/MWh for Winter 2022, which is essentially flat this past month.
The fundamentals outlook this week is strong, with wind power generation expected to pick up markedly compared to last week. This has helped push day-ahead power prices down to £91.50/MWh this morning, down more than £50/MWh compared to a week ago. Despite falls in prompt-gas in European markets the TTF – NBP spread has risen to a new record high of €68/MWh, the result of strong UK fundamentals.
EUA front-December carbon prices closed at €91.54 on Friday, returning to the record highs of the carbon bull-market in February. The move was helped by a brief stalling of gains in coal, but momentum this week could be bearish as global recession fears mount, which could lead traders to trim their holdings, and warm and windy weather stifles gas and coal demand.
Date: Friday, 6 May 2022
In a continuation of the sharp recovery begun on Wednesday, gains were made across the power and gas forward curves yesterday with baseload for delivery in 2023 rising almost 5%. UK Winter 2023 baseload set a contract high of £185/MWh, increasing its spread to Summer 2023 which closed at £171/MWh and continuing a two-week divergence between the contracts, which had been moving in lockstep.
Germany expects to have two floating LNG terminals by the start of 2023, enabling the import of up to 148TWh/year. In turn, US exporters expect to be delivering 20% more LNG by the end of 2022 compared to Winter 2021, making the US the largest exporter of LNG in the world and Europe’s principal origin of imported natural gas. The spread between European TTF and Asian JKM benchmarks stands at nearly €27/MWh, helping to attract cargoes westward.
Hungary, Bulgaria, Slovakia and the Czech Republic are seeking multi-year delays on the EU’s toughest round of sanctions yet, published on Wednesday. The proposal, which requires unanimous approval from the 27 member states, seems unlikely to pass this week unless a compromise is reached. The tussle over the terms of the sanctions has highlighted the probable difficulty of passing sanctions on gas, which is more crucial to EU states and less replaceable than Russian oil.
Date: Thursday, 5 May 2022
UK gas contracts posted gains of more than 5% across the forward curve yesterday, with 2023 seasons seeing an 8% rise. These moves are partly the result of an unexpected 5% fall in total Norwegian exports, principally affecting supplies to the UK – however with IUK capacity constrained, the UK system has seen large oversupply in recent days thanks to warmer-than-average temperatures. UK DA baseload is trading at £140/MWh, compared to £178 on month-ahead.
Gas storage in Europe (EU27+UK) is currently 34.5% full after a rapid start to the storage season, up from a Winter minima of 25.5%. This is despite broadly average temperatures across NW Europe, as high gas prices have put pressure on consumption. Refill began 10 days earlier than usual, on March 20th, and storage levels have climbed 39% faster than the pre-pandemic five-year average. Elevated prices could promote continued rapid inventory accumulation.
An ongoing heatwave across Northern India is leading to rolling blackouts as power networks struggle to cope with the demand for cooling. Coal prices have responded strongly this week, with front-quarter API2 coal jumping 20% since Monday, helping to buoy the energy complex. Continental near-term gas prices have risen by 7% in response.
Date: Wednesday, 4 May 2022
UK energy markets were mixed but largely flat coming out of the bank holiday weekend, with slight declines in the front-end and fractional rises in the back-end of the forward curve. Russian gas flows to the continent are flat on yesterday, and fundamentals remain strong with slightly stronger wind power generation and Summer-time temperatures across the UK. Norwegian gas exports have recovered compared to last week (up 8%).
The world’s largest coal importer, China, saw thermal coal imports fall 31% year-on-year in Q1, the result of rolling lockdowns constraining economic productivity. Despite this, coal prices have doubled across the board so far this year, as the principal market mover remains the upcoming ban on Russian coal exports to Europe. China seeks to insulate its generators from high prices by increasing coal production by 10% this year, which will put underlying bearish pressure on the market.
The EU will publish plans today for an embargo on Russia oil. Bans on Russian crude will be phased in over the next six months and for refined products by the end of the year. As part of the sixth sanctions package, a further tightening of access to SWIFT will make payments on Russian energy increasingly difficult, further discouraging trade. Brent crude jumped $4/brl on the news to $108/brl.
Date: Tuesday, 3 May 2022
UK power slipped slightly across the forward curve on Friday, following losses on gas contracts of 2-3%. Beyond Winter forward markets were down from record highs, aided by positive sentiment on strong gas flows, but also fears of recession as data showed that the US economy unexpectedly contracted in Q1. This week sentiment is neutral/bearish, as strong fundamentals provide downward pressure, although the possibility of further sanctions and developments in Ukraine will create upward momentum.
In an about-face, German economy minister Habeck stated yesterday that Germany would be able to bear the costs of a full embargo on Russian oil – ideally phased in near the end of the Summer. Having now lost its major opponent, EU plans for a ban on Russian oil are expected this week, included within a new sanctions package. Russia supplied 26% of the EU’s oil last year.
The IUK gas pipeline outage has been extended until 7 May, limiting export capacity to 530GWh/d. This has helped propel the spot spread between UK NBP gas and Continental benchmark TTF gas to €60/MWh – a record high, despite increased flows via Ukraine which are up at nearly 1,000GWh/d this morning compared to levels of below 500GWh/d early last week. Continuing warmer than average weather forecasted for the UK will sustain high-levels of exports to the Continent.
Date: Friday, 29 April 2022
UK baseload for Winter delivery fell by 5% to £230/MWh yesterday as panic in gas markets rapidly cooled as it appeared Poland and Bulgaria’s Russian gas switch-offs were isolated incidents. The picture was more mixed along the forward curve, with the back-end seeing small gains of 2% after a week of losses. Volatility remains low, however, having dropped off markedly since the end of March as liquidity has improved in the front-end.
Weather forecasts for next week expect temperatures to rise to as much as 3°C above the seasonal average, cutting heating demand. However, wind-power generation is expected to remain low, which will offset some of the pressure-release on the gas market. Day-ahead prices are expected to remain in the current £140-170/MWh range, and power for delivery in June has dropped to £171/MWh from above £200/MWh two weeks ago. Without major news, such as an escalation of the war or a broad refusal to meet Putin’s rouble gas payments demand, near-term prices are likely to remain lightly bearish and at, or below, current prices.
Reuters yesterday reported that possibly more than five European buyers of Russian gas have already opened accounts for rouble exchange at Gazprombank and made payments. An emergency meeting of EU energy ministers on Monday will clarify which countries have taken advantage of the Gazprombank loophole, although they are thought to include Uniper (Germany), Eni (Italy), OMV (Austria) and Hungary. This threatens to wedge open divisions in the EU, with the EC President Ursula von der Leyen saying the EU will not do Putin’s bidding – despite some members already having broken ranks.
Date: Thursday, 28 April 2022
Prices on Winter 22 NBP gas rose by 5% yesterday, tracking gains in European markets which reacted bullishly to the Russian supply news but without spiking in front-month and beyond. This is partly due to the volumes involved being relatively small (as Poland and Bulgaria account for just 8% of total EU natural gas imports), and the sentiment favouring continued Russian supply as a necessity to fund it’s war effort. UK baseload for winter delivery jumped by 7% to £241/MWh, however the remainder of the forward curve was fairly static.
LNG imports remain strong in the coming seven days, with 7 cargoes totalling 8600GWh or 4 day’s supply at the present rate of consumption. The Continental TTF gas benchmark has continued to diverge from NE Asian JKM, with the spread reaching €27/MWh of gas during the current price spike. This has been aided by an ongoing outbreak of covid lockdowns in China, which won’t stop recurring in the mid-term so long as the Party maintains it’s compromised zero-covid policy, and strong storage levels in Japan.
In an attempt at divide and conquer, Russia has suspended supplies to Poland and Bulgaria while maintaining steady exports to Germany, already seen as soft on Russia. The move is expected to exploit the current divisions in the EU, where on the other side Poland is hardline against continuing imports of Russian energy. Germany is said to be preparing to pay Gazprombank to continue gas flows, however in the mid-term Germany does not appear wedded to Russian energy – instead focussing on shifting import origins as fast as possible without impacting security of supply.
Date: Wednesday, 27 April 2022
Front-end UK gas was sharply up, in-line with markets on the Continent, with Winter 2022 rising 50p/therm between close on Monday and early trading this morning, to reach 275p/therm. Bullishness was confined to near-term contracts, however, with 2023 baseload seasons falling 5% to the £160-165/MWh level, extending this week’s losses after a month-long bullish run. UK gas pipeline exports to the Continent were cut today due to a technical outage, sending the TTF-NBP spread soaring to €51/MWh. Flows are expected to resume tomorrow.
Gazprom briefly halted gas supplies to Poland and Bulgaria, stating that they had failed to pay in roubles. Exports to Poland have resumed at a low level of 80GWh/d, but European gas markets are jittery after Gazprom apparently informed PGNiG yesterday that it would terminate flows at 8am CET on Wednesday. Putin’s decree on March 31 that “unfriendly” countries must pay for Russian gas in roubles is expected to affect payments occurring in May onwards for gas delivered after the decree. Front-month TTF gas is currently trading 18% up on Monday’s close price at €110/MWh.
Spain and Portugal were granted permission by the EU to implement an average €50/MWh cap on the price of gas used in power generation for 12 months, expected to come into force from May, in order to shield consumers from volatility in gas markets. It has not been confirmed how the mechanism will work or how the interconnector price to France will be affected, although gas contracts in Iberia have edged lower on the news.
Date: Tuesday, 26 April 2022
UK baseload continued to edge lower yesterday, with the forward curve dropping by 1.5% across the board. The relative risk premium on Summer 2023 over Winter 2023 has faded markedly in the last month, with markets carrying forward current concerns over future energy supply from Russia into the long-term. Winter 2023 now trades at a £6/MWh premium to Summer 2023 (£175 vs £169/MWh), although sharply below the £217/MWh for Winter 2022, which is widely seen as a pivotal test for European energy independence from Russia.
Although Germany has already legislated minimum gas storage fill requirements for this year, the EU is now debating a deal to share out the costs of procuring gas for storage and implement similar requirements (80% fill this year) to Germany’s. The deal will involve countries without storage sites covering 15% of their annual consumption by filling the equivalent volume in states with storage. These measures will facilitate joint procurement of gas by EU nations in the future.
Easing Norwegian platform maintenance going into May will help loosen the UK gas system, which is tight this week on high gas-for-power demand and cooler weather. Norwegian exports to Europe are currently 10% down at 3,200GWh/d, and Russian flows via Ukraine are also down 300GWh/d month-on-month at 520GWh/d. These factors have not inhibited gas storage fill, which in NW Europe is now nearly at 30% of capacity, up from 21% a month ago.
Date: Monday, 25 April 2022
UK gas forwards were down slightly at close on Friday, with Winter 22 down 5% and the remainder of the forward curve down 2%. UK baseload largely followed gas but was more mixed, with a fractional gain on Winter 2023. The fundamentals outlook this week is poor, with wind power generation expected to average around 2 GW and temperatures across the country dropping below the seasonal normal until the weekend.
German newspaper Die Welt has suggested that the EU Commission will likely put forward proposals for a sixth sanctions package this week, which could include a ban on Russian oil imports. EU members will debate the package at a summit due at the end of May. Josep Borrell, the EU’s top diplomat, stated that even though there was no consensus among members for total energy sanctions on Russia he believes that eliminating Russian energy imports is going to happen eventually.
EU benchmark carbon prices were up at €88.99/tCO2 on Friday, their highest level since the crash in February. The moves were fuelled by strong German auction results, but may not last after a victory for renewables-supporting Macron and a renewed spread of lockdowns in China, which will put bearish pressure on global energy markets. UK carbon markets followed the EU’s, with front-December credits closing up 6% for the week at £82.55/tCO2 – about £37/MWh for a gas-fired power station.
Date: Friday, 22 April 2022
UK gas markets were up again yesterday, with uniform gains of more than 4% across the forward curve. UK baseload followed like-for-like, with Summer 2023 setting another record high at £174.6/MWh, while Winter 2022 rose to £228/MWh. API2 front-quarter coal dipped by 3% in response to carbon prices remaining at the €87/tCO2 level, and Brent crude is trading flat at $106/brl.
Despite being in the midst of a warmer-than-average April, the LNG import roster remains strong with the UK expecting six cargoes in seven days totalling 7680GWh or four typical Spring day’s demand. This is compensating for significant short-term outages in Norwegian gas production, which has fallen by around 640GWh/d due to maintenance works. Reduced Norwegian exports have also pushed the spread between NW Europe gas benchmark TTF and UK NBP spot above €34/MWh this morning, fuelling high pipeline exports of 620GWh/d from the UK to the Continent.
TTF has sharply diverged from the Japan-Korea Marker (JKM) in recent days, with the spread rising to €18/MWh as JKM falls away. Natural gas demand in Korea and Japan is down year-on-year, triggered partly by a mild Winter and partly by record high commodity prices causing demand destruction, with overall Asian LNG imports dropping 10% in Q1 2022 compared to Q1 2021. Covid lockdowns in China’s largest port, Shanghai, have not helped, leaving European buyers to hold sway over the LNG spot market – for now.
Date: Thursday, 21 April 2022
Prices continued to creep up by 3% to record highs across the forward curve for UK baseload yesterday, with the exception of Winter 22 which has remained essentially bound in the £210-240/MWh range over the last month. Front-season gas is up 3% in early trading this morning which could presage a similar move in power. Current bullishness in gas is driven by a sense that because EU sanctions on Russian oil are now being negotiated, Russian gas (the last and most crucial energy import) must be next.
In trading yesterday EU carbon prices jumped by nearly 10% to €87.82 after six weeks of stasis. The lack of an EUA auction may have focussed attention on futures, but gains came despite MEPs narrowly backing curbs on speculation in the EU ETS. API2 coal for delivery in 2023 responded with a rise of more than 4%, now trading at $245/t and close to the early-March peak of $261/t which occurred immediately after the start of the war in Ukraine.
After a flurry of supply deals across Africa, Italy believes that it could be independent from Russian gas by the second half of next year. Russia supplies around 35% of Italy’s demand, which is similar to that of the UK, making Italy the second most exposed nation to Russian supply in the EU bloc after Germany.
Date: Wednesday, 20 April 2022
UK baseload power closed down 2.6% yesterday thanks to stronger fundamentals and a lack of bullish factors dropping out of the war in Ukraine. The remainder of the forward curve for both UK gas and power was static, with contracts on the back-end pausing after a sustained bullish run. API2 front-quarter coal is trading 2% up at $318/t this morning, and front-December EUAs are flat at €82/tCO2.
Renewable power output will pick up across NW Europe from today, with a strong wind generation forecast lasting until Sunday. Ongoing above-average spring temperatures have dampened gas demand, boosting gas flows to storage. NW European aggregate storage has risen by 20 TWh in the last 12 days, and if fill continues at this rate levels will exceed 400 TWh by Oct 1st – close to the EU’s 80% storage requirement for that date.
Russian coal exporters are offloading as many cargoes as possible at European ports prior to the total EU ban in mid-August, with volumes at Russia’s main western export terminals up 7% on last month despite milder weather. Unlike trader’s reticence to buy Russian crude, which has seen European imports sharply drop, coal demand remains strong in Germany and the Netherlands – although imports are down when compared to February, prior to the start of the war.
Date: Tuesday, 19 April 2022
Front-end UK baseload fell by 4% in the front-end on Thursday, with Winter 2022 NBP gas driving bearishness after a daily drop of 10%. Contracts were flatter further along the forward curve, continuing the convergence between front-end and long-term energy prices. Front-quarter API2 coal rose to $321/t, and EU Dec-22 benchmark carbon prices remainder stuck at the €80/tCO2 level – the same as for the past six-weeks.
The French Finance Minister this morning said that a Russian oil embargo was being negotiated within the EU. The major holdouts are understood to be Germany and Austria, with France’s Macron a principal proponent. Brent crude was up 15% week-on-week yesterday, currently trading at $112/brl, aided by production outages in Libya and the reopening of Shanghai – which could be followed by eased Covid restrictions across China.
As power demand for cooling rapidly rises in the coming months across Asia, it is likely India will face persistent electricity shortages. The country is already suffering from frequency drop-outs, a sign of generation failing to meet demand, as temperatures across the 400 million strong Gangetic plain are already exceeding 40°C. India is expected to be fishing in international markets for additional coal supply, which could help buoy prices further, although it principally suffers from a lack of generation capacity.
Date: Thursday, 14 April 2022
UK gas and power markets were mildly bullish yesterday, with 2023 baseload seasons setting contract highs at the £166/MWh level and continuing a 3-week bullish trend. Front-quarter API2 coal closed at $321/t yesterday as the embargo on Russian coal begins to hit stockpiles. Oil is trading at $108/brl after two strongly bullish days, reversing two weeks of losses.
Germany aims to charter three floating LNG terminals with 79 TWh of regasification capacity available this year, ramping up to 285 TWh by summer 2024. These will help bridge the gap to the building of the country’s first land-based terminal as it tries to rapidly eliminate dependence on Russian pipeline flows by mid-2024.
Austrian Chancellor Karl Nehammer was reportedly told by Putin in their meeting this week that Austrian payments for gas could continue in Euros, despite Russian demands for Rouble payments. This potentially opens the door for the continuation of normal payments for Russia gas, assuaging concerns over non-delivery due to non-payment. Meanwhile, Italian state-controlled Eni has signed a gas production and LNG supply deal with Egypt, worth up to 31 TWh this year.
Date: Wednesday, 13 April 2022
Front-end UK baseload was once again flat yesterday, and prices for Winter 2022 (£229/MWh) continued to converge with Summer 2023, which rose by 2.5% to £161/MWh. Front-quarter API2 coal was sharply up by 6.8% at $314.5/t, as was Brent crude which jumped by $6/brl to $104.6/brl at close yesterday after the IEA reported that Russian output losses would double in May thanks to reticence on behalf of European buyers.
After a visit to Ukraine, key German lawmakers are calling for an EU ban on Russian oil, despite warnings from Germany’s leading economic institutes of recession if there are further sanctions on Russian energy. Germany is the major hold-out in the EU hampering the drafting of tighter sanctions, with voters concerned over the exposure the country has to Russian energy supply.
France is reportedly considering plans for a full nationalisation of debt-laden EDF, owner of Hinkley Point C, which include the possible sale of it’s renewable arm to drum up cash for it’s nuclear business. EDF has been in difficulty since projects using it’s new EPR reactor design – including the 13-year delayed Finnish Olkiluoto-3 and Hinkley C – have faced repeated delays and cost over-runs, compounded by an apparently widespread pipe corrosion problem discovered in several French reactors earlier this year. Nationalisation could see a scaling-back in the number of projects abroad for Europe’s foremost nuclear reactor business.
Date: Tuesday, 12 April 2022
Front-season UK power and gas contracts continued their gradual divergence from the rest of the forward curve yesterday, with Winter ’22 baseload falling 1.3% to close at £229/MWh despite increases of 3% on seasons further out. Winter remains at a significant £72/MWh premium to Summer ’23 baseload, however. In the absence of news of major new sanctions energy markets will continue the trend of last week today and remain fairly steady.
The EU is drafting proposals for a possible oil embargo on Russia, although no agreement has yet been reached. Separately, the European Commission is also looking at targeting imports of Russia crude with intention to pressure Russia into halting the shelling of Ukrainian cities. Both these factors are placing underlying bullishness on energy markets which are currently being pressured by an increasingly rampant Covid epidemic in China. Oil was up at $100.23/brl this morning.
As LNG imports to the UK continue at pace the spread between spot NBP (UK gas hub) and TTF (benchmark NW Europe hub) prices has increased, reaching €20.83/MWh yesterday. The UK is currently expecting 8 shipments of LNG by Easter Monday, totalling 8,500GWh or about 4 typical spring days’ demand, which will continue to fuel high pipeline exports to the Continent.
Date: Monday, 11 April 2022
While front-season UK power and gas contracts were flat on Friday, forwards for 2023 were up more than 4%, bringing prices more inline with those for Winter 2022 on the expectation of supply pressures remaining. API2 front-quarter coal was up 5.7% to $296/t (a two-month gain of $160/t or 218%), while Brent oil is currently trading flat around $100/brl at the level of Wednesday/Thursday last week.
Temperatures across the UK will be as much as 3°C above the seasonal average this week. By Wednesday the wind power generation is expected to fall to below 2GW and remain at that level across the forecast. Gas-for-power demand will therefore be up this week, but more than offset by lower domestic heating requirements.
The EU has launched a platform for EU Commission and country representatives to pool member’s gas demand and co-ordinate talks with suppliers. Italy has managed to secure additional flows from Algeria, and there are suggestions of an EU deal with Israel, which exports LNG via terminals in Egypt. The Commission also indicated that the platform will support hydrogen buying, reflected in EU climate chief Frans Timmermans comments as he laid out a revisit to the EU’s 2030 renewable target with intention of increasing it to help eliminate dependence on Russian energy.
Date: Friday, 8 April 2022
Winter 22 NBP natural gas fell by 2.4% yesterday thanks to warm temperatures and strong winds, and no major developments in Russia’s war. This also meant that the remainder of the gas forward curve was fairly static, and power markets were similar with UK baseloads forwards moving less than 1% in both directions. Carbon was the biggest gainer yesterday, with UKAs for expiry in Dec-22 closing 5% up at £76.28/tCO2 after strong auction results.
In global LNG markets developments in Europe remain the dominant market driver. This has not stopped Asian demand however, with the spot market spread between the Japan-Korea Marker and NW Europe’s TTF hub having once again narrowed below €0.50. As the spread has narrowed since mid-March, the European and Asian markets have been trading places as the most attractive destination for LNG cargoes. However, momentum could swing firmly towards the east, as European demand slows but demand for cooling in Asia begins to rise as summer weather hits.
Global energy markets continue to face downward pressure from spreading lockdowns across China, as the government continues to hew to it’s zero-Covid policy. Facing the highly-infectious and cryptic Omicron variant, it seems unlikely that the virus will be completely eradicated once more. It appears the party may have little choice, however, as vaccination rates are poor among the elderly – just 82% having had two doses – and the vaccines used (such as Sinovac) show much poorer efficacy, raising the possibility of a renewed spike in deaths unless the outbreak is controlled.
Date: Thursday, 7 April 2022
UK wholesale baseload forwards were static in the front-end yesterday, but further out minor gains of 2-5% occurred as the prospect of import bans on Russian energy to western countries appeared likely to be prolonged. In a bid to cool global oil markets, IEA member states agreed to release 60m barrels of crude oil in addition to the US’s commitment of 180m barrels over the course of the next six months. Brent crude dipped below $102 in response.
The EU’s ban on Russian coal imports will not take full affect until August, with an extension to the wind-down period pushed for by Germany. Additionally, it isn’t clear whether the ban will affect only new contracts or existing ones also, which could enable Russian imports to continue well after the ban is emplaced. Gains in front-quarter API2 coal stalled yesterday, losing $1/t to close at $292/t.
The global coal market is tight, with the world’s largest exporters, Indonesia and Australia, having hit their production limits already meaning that the additional demand for supplies in Europe will likely go unfulfilled. Russia’s exports of coal to European destinations have declined by 12% since the start of the war, which helped send front-quarter API2 briefly above $450/t. European governments are maximising coal-fired generation capacity, which despite increases in the fuel price remain more cost-effective than gas.
Date: Wednesday, 6 April 2022
While front-season UK baseload hardly budged yesterday, 2023 seasons climbed by more than 4% to £141/MWh, dragged up by a rise in 2023 NBP gas of 8% (although gas markets remain illiquid). Brent crude remains at the $108/brl level, with expected supply impacts from sanctions on Russia balanced against slowing demand recovery.
The EU plans to ban the import of Russian coal as part of the 5th package of sanctions on Russia, worth about €4bn annually. Front-quarter API2 coal jumped by $40/t to $290/t in response. Additional bans were proposed on raw materials including wood and cement worth €5.5bn and the Commission is working on sanctions on imports of Russian oil, with European Council President Charles Michel stating this morning that “… measures on oil and even gas will also be needed sooner or later”.
European gas stocks ended winter slightly below normal but much higher than was expected four months ago. Storage levels in NW Europe reached their nadir on March 18th at about 20% of total capacity, thanks to high prices which both encouraged imports of LNG and discouraged usage, as well as to mild weather. Gas prices are expected to remain at elevated levels, particularly when compared to a year ago, attracting LNG cargoes and aiding storage top-ups.
Date: Tuesday, 5 April 2022
Winter 2022 UK baseload had fallen by 5.3% at close yesterday as it appeared that the recent cold weather was essentially behind us, despite a brief cold spell expected for the end of the week, and fundamentals in the UK are softer this week – with broadly milder and windier weather expected to continue and temperatures predicted to rise into next week. Front-end gas was steady, although fair value for the back-end rose by up to 5% on long-term supply concerns.
The spread between Continental TTF gas hub prices and UK NBP hub has risen to €15.22/MWh on spot, the third highest on record, fuelling high UK exports of 612GWh/d to the Continent. This is largely down to strong LNG receipts at UK terminals expected to continue in the coming seven days with seven cargoes totalling 8360GWh, or about five Spring day’s demand in the UK. The dominant origin of cargoes is the USA.
The EU is considering further sanctions on Russia after apparent war-crimes in previously Russian-occupied areas, causing Brent Crude to jump by $4/brl to over $108 this morning. While Germany remains staunchly opposed to a ban on Russian gas, Italy moved by saying it would not veto an EU-wide initiative. France suggested a compromise could involve hefty tariffs on Russian gas imports, pushing the market to favour alternative supply.
Date: Monday, 4 April 2022
Natural gas prices fell on Friday, with Winter-22 NBP falling from 298p/therm to 265p/therm as fears of a Russian supply cut ebbed. EU Dec-22 benchmark carbon prices finished a third consecutive trading week at remarkably steady levels, having hardly moved from the €76-80/tCO2 range after recovering from a major dip in early March.
Despite the issuing of Putin’s roubles-for-gas deadline on Friday and Europe’s refusal to comply, Russia did not cut flows. Russian flows to NW Europe this morning are slightly up on last week. Meanwhile, the Baltic states became the first to completely sever gas imports from Russia, instead relying principally on gas storage.
Members of the IEA on Friday agreed to join the US’ largest ever 180 million barrel oil reserve release, but without confirming the volumes involved. After failing to bring partners in the Gulf onside, the Biden administration has authorised the release of 1m bpd for 6 months in an effort to put sustained pressure on a strong oil market.
Date: Friday, 1 April 2022
NBP and TTF gas markets rose yesterday on lower temperature forecasts and uncertainty on Russian gas payments. This morning see gas continues to flow, and the market is steady to where it settled yesterday.
Uncertainty over Russian gas payments in Roubles remains the major risk to the European gas market. Yesterday saw Putin announce that, from today, Europe will be expected to pay for Russian gas in Roubles – else it would cease deliveries. So far, the response remains that Europe will continue sticking to the contract terms (which state Euros or Dollar payments).
Robust LNG deliveries have been declared to NW Europe, and solid LNG sendout over next week is still foreseeable. A bearish move across oil (after the Biden Administration announced the largest ever release of oil reserves) coupled with marginally higher French nuclear availability next week might provide some bearish direction to European gas prices.
Date: Thursday, 31 March 2022
Summer 2022 NBP gas rose by 8.5% yesterday as it neared delivery. Beyond 2022, the gas forward curve saw falls of 2-3%. After the Biden Administration announced the largest ever release of oil reserves – 180 million barrels – oil for delivery in June dropped from $111.44 at close yesterday to as low as $105.12 this morning.
The Kremlin commented yesterday that Russia will not have a mechanism to take payments for exported gas in roubles ready immediately as more time would be needed to develop such systems. Proposals for these systems are expected today from Gazprom and the Russian central bank. Russian flows via Ukraine and Nord Stream are flat this morning, with flows via Poland up slightly.
The Russian newspaper Kommersant has reported that Gazprom is studying options for halting gas flows to Europe and evaluating the potential fallout, feeding fears of a choke on supplies. The Dutch and German governments have launched campaigns requesting citizens and companies use less gas, for example by turning thermostats down by 2°C – an idea floated by the IEA earlier this month, which could save 13% of the gas EU members buy from Russia.
Date: Wednesday, 30 March 2022
Energy markets were mixed yesterday, with limited moves in both directions occurring across the complex. Front-end gas, coal, power and carbon made minor gains, while oil and back-end power and gas fell off by just over 1% as traders assessed the direction of peace-talks as positive. UK military intelligence is sceptical, however, citing zones where Russia said it would scale back operations as those where it was already being pushed back. The country is likely re-assessing it’s war aims in a pivot to concentrate on the Donbas region.
Germany today declares an “early warning” of a possible gas supply emergency, activating the first of three stages in the country’s gas emergency plan. This requires an evaluation of further actions which could be undertaken to improve the security of supply. This move reflects concerns the supply situation is more likely to deteriorate than improve in the short term and in the long term competition for natural gas will increase.
The speaker of Russia’s lower house of parliament has suggested that demand for payments in roubles could be broadened across the breadth of exported commodities from fertiliser to timber. As the largest exporter of raw materials globally, such a move would place intense inflationary pressure on the global economy, increasing the looming likelihood of recession at the end of this year.
Date: Tuesday, 29 March 2022
2022 UK baseload rose just over 3% yesterday, although sentiment was more mixed across the remainder of the forward curve. Temperatures in the UK are expected to plunge to nearly 4°C below the seasonal average in the coming week, although this will be matched by a return to normal for wind-power generation, reducing gas-for-power demand. Oil prices fell by $8/brl to $112.48/brl, and coal prices were flat.
After G7 ministers refused Putin’s demand for rouble-only payments on gas on Monday, citing the move as a breach of existing contracts, Russia said flows would stop if payments were not forthcoming. Proposals for solutions to rouble gas payments are expected from the Russian central bank, the government and Gazprom by Thursday. It seems likely that the end-result of Putin’s move is reduced flows of gas to Europe at higher prices by forcing older more favourable fixed-cost supply deals to be torn up, a geopolitical victory for the Kremlin – less gas for more money.
As China hews to an increasingly difficult zero-Covid policy, lockdowns are spreading across the country with the latest affecting 26-million strong Shanghai. This is having a strong impact on oil demand in the world’s largest importer of crude, going some way to offset the 1 to 3 million bpd supply drop from sanctions on Russia. Despite attempts to contain the virus, infections are expected to sweep the country in the coming weeks likely causing major economic pain if the central government refuses to fall back to a mitigation strategy.
Date: Monday, 28 March 2022
Gas markets fell back on Friday after a jump mid-week, with NBP 2022 seasons falling more than 8%. Summer 2022 UK baseload heads into its final couple of trading days at £213/MWh, and Winter 2022 hovers similarly at £215/MWh. Russian flows this morning are flat, and the LNG import roster holds a strong supply of 8 ships in the coming week totalling 9,500GWh or around five typical Spring days’ demand.
Last week the EU Commission tabled a mandatory certification scheme of gas storage owners in Europe, a direct response to a lack of storage additions in 2021 by Gazprom, which controls around 20% of NW European capacity. To incentivise filling of storage, tariffs on exit and entry to storage have been eliminated, factors which will help the EU reach it’s 80% storage goal by October 1st. On Friday German lawmakers approved legislation mandating 90% storage fill by Nov 1st.
Despite accusations of wide-spread speculative investing in the EU ETS, the EU’s securities watchdog found only small net investment fund positions, principally held in the UK and US by companies taking part in high-frequency algorithmic trading. Tighter controls were recommended, however, as monitoring and transparency on trading is limited. Front-year EUAs soared from below €40/tCO2 to €97/tCO2 in the year to February, before crashing down to €58/tCO2 in early March.
Date: Friday, 25 March 2022
UK gas forwards for 2022 dipped by 4% yesterday, although the picture was more mixed across the remainder of the forward curve, as European leaders once again declined stricter sanctions on Russian gas. Front quarter coal steadied around $280/t after gaining 17% from the start of this week, and oil retreated from $122/brl to as low as $115.80 in trading this morning, as it appeared that exports would be able to continue from one of the berths at the storm damaged black-sea CPC terminal.
The EU and US unveiled an LNG supply deal today for an additional 15 bcm in the remainder of 2022, equivalent to about 20% gas flows from Russia if they continue at the year-average rate. The long-term objective is to secure an additional 50 bcm (about 50% of year-average Russian flows) per year. The deal comes at the end of three days of summits among EU leaders which also produced a joint gas procurement plan for this year.
On Thursday the German utility association BDEW, representing the Continent’s major gas buyers, said that “There are concrete and serious indications that the gas supply situation is about to deteriorate”. It cited two likely outcomes from Putin’s roubles-only payments demand on Wednesday: that European customers decline and risk getting no gas, or that they comply and accept higher prices as contracts are renegotiated and cheaper long-term deals scrapped.
Date: Thursday, 24 March 2022
Putin yesterday announced that all gas sales to “unfriendly” countries must be paid in roubles. In effect, this means that Western buyers of Russian gas will be supporting the currency that sanctions have done so much to damage. However, it will negatively impact Russia’s ability to service foreign debt dominated in dollars and euros, which together accounted for 97% of the payment currencies for gas flows in January.
UK gas markets were up by over 15% for 2022 seasons yesterday after Putin’s announcement. Supply is strong, however, with the LNG import roster packed thanks to shipments drawn westward by the price-spike, with UK terminals expecting 10 cargoes in the next 9 days, totalling 11,400GWh or about 7 days of typical spring gas demand. Russian flows are static, and a 20p/therm premium for TTF gas over NBP is keeping pipeline flows from the UK to the Continent high at 440GWh/d.
Oil pipeline flows from fields developed by Western majors in Kazakhstan have been cut due to “storm damage” at loading facilities on Russia’s Black Sea coast, with maintenance taking up to two months and reducing exports by 1 million bpd. A Kazakh official commented that Kazakhstan and Russia would find ways to re-route oil if the suspension was prolonged. In January, Russia sent troops to help the embattled Kazakh President Tokayev quash protests, and the two countries on Tuesday agreed to work towards boosting oil transit to China.
Date: Wednesday, 23 March 2022
Gas markets rallied slightly yesterday, with gains of ca. 3% across the forward curve, after a week of heavy losses fuelled by difficult but apparently productive Russia-Ukraine negotiations. Front-year API2 coal made the greatest jump, up 10.6%, as traders hedged the likelihood of a European ban on Russian coal.
NW Europe’s gas storage levels have been flat over the past fortnight at around 20% of total capacity, as warm sunny weather has offset increased gas-for-power demand resulting from low wind generation. Winds are not expected to pick up until Wednesday next week just as temperatures will plunge sharply to 4°C below the seasonal average.
As President Biden visits Europe for a Nato summit today, pressure from the US for an embargo on Russian oil exports looks to yield little fruit. The unity of EU members shown after the start of the invasion has begun to crack, in part thanks to Germany’s reticence towards energy sanctions, as the Russian invasion has stalled – although a further outrage in the form of a chemical or biological weapon attack could push the bloc to bite the bullet and impose strict bans on energy exports.
Date: Tuesday, 22 March 2022
Despite some bullish signals yesterday, the markets didn’t show strong reactions. In fact there were bearish movements in the shorter-term gas and power markets (e.g. day-ahead, Sum-22 and Win-22), likely taking direction from the Dutch TTF front-month contract, which closed below €100 for the first time since Russia commenced it’s assault on Ukraine. This morning flows are looking steady and the markets have opened level to yesterday.
Gazprom did not book much capacity to flow gas into Europe for April in the monthly auctions. This move could be pre-guessing sanctions that will come soon or could be due to EU buyers not giving buy orders for April. Either way, this could make it harder to meet storage demand.
Japan is scrambling to keep the lights on in Tokyo as a result of cold weather and power plant outages from last week’s earthquake, which suggests that they will be needing strong LNG supply. Japan is a major LNG demand centre and European markets will be looking out for the potential re-routing of LNG flows at a time when Europe also need robust LNG supply as they look to reduce reliance on Russian gas.
Date: Monday, 21 March 2022
Gas flows are looking stable this morning and today’s early trading activity is showing small downward movements since prices closed on Friday. Despite some upward price movements in gas prices on Friday, both gas and power prices recorded a net downward movement over the course of the week as concerns over Russian supply were counter-acted by a milder weather forecast and high LNG arrivals.
The markets will be awaiting the results of the monthly capacity auctions being held this morning. Results (due at 11am) could push the markets in either direction depending on whether there are any Russian gas flow bookings for April.
Carbon prices failed to break through the €80/tCO2 mark last week and today have opened 1.3% down at €77.84/tCO2. Today’s latest weather forecast sends a bullish signal to carbon prices due to forecasts of low wind power output across much of Europe this week (which could boost fossil power generation and corresponding EUA/UKA demand), but this week’s warmer temperatures could offset some of the effects.
Date: Friday, 18 March 2022
UK power and gas prices saw some bullish movements yesterday, taking direction from European gas prices which were lifted mostly by reduced Russian supply via Nord Stream pipeline yesterday. This morning has again seen Nord Stream 1 pipeline flows decline in line with nominations, while reverse flows on the Yamal-Europe pipeline eased and nominations for pipeline flows via Ukraine increased.
The EUA Dec-22 contract broke above the 100-day moving average yesterday, closing at 79.68 Eur/tCO2, but struggled with the 80 Eur/tCO2 resistance level in yesterday’s session. After several days where the 100-day moving average has limited the carbon price, prices closed above this level yesterday and this could suggest further room to the upside.
Oil prices have extended their gains this morning at the end of a third volatile week of trade after slim progress in peace talks between Russia and Ukraine raised the possibility of tighter sanctions and a prolonged disruption to oil supply. Brent crude futures rose $0.82, or 0.8%, to $107.46 a barrel this morning, after surging nearly 9% on Thursday in the largest percentage gain since mid-2020.
Date: Thursday, 17 March 2022
Yesterday saw a dip in power and gas prices across the curve, led by downward movements in day-ahead prices on continued bearish sentiment – driven by the reported progress in the peace talks held between Russia and Ukraine. Mild weather combined with quick LNG cargo arrivals and steady send-out is also expected to mitigate the upside over the coming days.
Prices yesterday were also reacting to news that Norway will boost its natural gas output in the coming months by postponing some maintenance and making other adjustments together with pipeline operator Gassco. They will keep production higher than normal through the summer and deliver bigger volumes to Europe at a time of shortages and soaring prices.
Brent crude has gained $3/brl (3.1%) to $101.09/brl this morning after falling for three consecutive sessions. This comes as the International Energy Agency (IEA) said markets could lose three million barrels a day of Russian crude and refined products from April.
Date: Wednesday, 16 March 2022
UK power forwards were largely flat yesterday as the market weighed the potential for peace talks to progress – news this morning has Russia indicating that some parts of a peace deal are close to being agreed. Coal prices continued to slide by 6%, while the rally in carbon prices stalled with EUAs for Dec-22 closing fractionally down at €77.43/tCO2.
Gas deliveries by Gazprom outside the former Soviet Union have fallen by 28.5% annually so far this year as buyers shun new contracts and flows via Poland and Ukraine have been broadly low but highly variable. Concerns over the reliance on gas has pushed the UK to investigate extending the lifespan of Sizewell B, the youngest nuclear power plant in the country, by up to 20 years – as well as increasing North Sea oil and gas production.
According to the German economy minister Robert Habeck, Germany aims to halt imports of Russian coal from the autumn. Russian coal accounted for more than 70% of hard coal imports in Germany last year, and hard coal variably provides between 10-15% of power generation for Europe’s largest economy. These imports will have to be replaced with alternative seaborne supplies, as despite being a major producer Germany mines only poor-quality lignite, which is unexchangeable with hard coal in powerplants.
Date: Tuesday, 15 March 2022
Markets dipped further yesterday as traders took early Ukraine peace-talks as a bearish signal. 2022 seasons in UK baseload dropped by 10%, with smaller falls occurring across the forward curve. Brent crude is trading at $100.44/brl, a fall of more than 25% from trading last week.
Self-sanctioning by Western buyers, which was previously expected to start hitting in April as March cargoes would largely have been booked, has already begun to show in Russian exports of coal, oil and LNG. Coal has seen the sharpest drop, with cargoes of 1.16 million tonnes expected to Europe in the first two weeks of this month (compared to 3.37 million tonnes in February and 3.88 million tonnes in January). LNG shipments have followed, as data shows no cargoes of LNG awaiting loading, and shipments of crude oil to Europe have halved.
Oil and gas production in the Texas Permian is due to rise to a record high in April, 18 months after major operators were pulling out of the shale oil basin due to crushingly low prices. In the US’ NE Appalachian basin gas production will also hit a record high, and the number of new wells drilled is currently the highest since March 2020. These changes reflect American oilmen maximising the output of existing fields, taking advantage of a globally tight oil market, but will not be sufficient to replace Russian crude and LNG shunned by European buyers.
Date: Monday, 14 March 2022
UK natural gas for summer delivery was up 18p at 306p/therm on Friday, but has dropped to 270p/therm in early trading this morning. Power prices followed gas, although the potential for serious negotiations between Ukraine and Russia after progress over the weekend has signalled bearishness today. Oil is down at $108.80 as hopes for a shorter disruption to Russian supply have dented buying pressure.
NW European gas storage curve has flatlined since last Wednesday as relatively mild weather prevailed and wind power generation operated near capacity. Temperatures will remain up to 3°C above the seasonal average for much of this week, although wind power output will be lower and variable compared to last week, making it likely that there will be further minor declines in storage volumes.
European nations are split on banning imports of Russian energy, with Germany, Hungary and Bulgaria firmly against the prospect due to high dependence on Russian exports. Poland is staunchly in favour – despite the enormous impact such a ban would have on former eastern-bloc economy, where 55% of gas imports originate in Russia. The remainder of EU members are on the fence or open to sanctions, the likelihood of which appears low in the next week.
Date: Friday, 11 March 2022
Gas markets fell further on Thursday, with Summer 22 dropping 19%, as traders priced in a lower likelihood of sweeping energy sanctions on Russia from the EU. Power markets followed, with 2022 seasons losing 10% and 2023 between 3.5-5%, aided by a 20% fall in coal prices. These moves came despite a 7.5% jump in UK carbon prices, signalling expectations that higher coal burn will offset moves to decrease gas consumption.
Oil is trading up at $112/brl this morning, after falling sharply on the UAE’s suggestion of increasing output on Wednesday. OPEC and its allies have struggled to raise output to meet even modest increases each month, and it seems doubtful that the core alliance would be able to increase supply fast enough to replace lost Russian volume in the short to mid-term.
As the total number of U.S. LNG cargoes shipped to Europe in a quarter reached a record of 164 for the first two months of 2022, the Biden administration shelved an interagency review of ways to boost LNG exports to Europe. Pressure from the administration’s climate team reportedly was behind the move, driven by concerns over the carbon cost of building new LNG terminals and increasing natural gas extraction which is notoriously leaky process, releasing significant amounts of the powerful greenhouse gas methane into the atmosphere.
Date: Thursday, 10 March 2022
Brent Crude oil fell by 13.2% yesterday to $111/brl, the largest drop seen since April 2021. This was mainly driven by the news that OPEC through the UAE would pump more oil into the market, as Russian sanctioned oil becomes less palatable.
As the gas system opened up long, day ahead prices also fell yesterday from the highs of 520p/therm on Monday to 342p/therm on Wednesday. Pressure across the curve was seen with bearish sentiment coming from Opec, better storage, and continued strong LNG imports.
UK power followed the gas market with day ahead dropping to £318/MWh, strong wind output and good flows of gas with slightly milder weather are causing some risk premia to come out of the short term market. It is interesting to note how correlated Summer 22 is to day ahead. Carbon broadly flatlined on Wednesday with latest auction prices trading at £62.2/tonne
Date: Wednesday, 9 March 2022
Gains in power prices stalled yesterday, with Summer 22 baseload falling 2.8% and 2023 seasons down 7%. This came despite gains of 24% to €72/tCO2 in EU carbon from close on Monday, although UK carbon prices remain flat at the £69/tCO2 level. Gas markets are in a holding pattern ahead of announcements by the EU, although a minor retreat could occur as major EU economies do not yet look set to follow the US in announcing sanctions on Russian energy.
The 25 members of the IEA are co-ordinating an oil reserve release of 62.7mnbrls, more than the 50mbrls released by the US in November. This release is expected to a have a limited effect on oil’s bullishness, however, as it will only temporarily abate the shortfall from banned Russian imports and stranded Russian cargoes unable to dock in Europe. Brent crude closed yesterday at $128/brl, up more than 20% week on week.
The Philippines and Vietnam will open their first LNG import terminals in Q3 and Q4 this year, increasing the number of buyers in the Asian market, and China will also add more regasification capacity. However, demand growth in Asia is expected to slow to 2% this year from 8% in 2021, due to record pricing, while European LNG demand is expected to spike by at least 20% reflecting an appetite to pay a premium on LNG to avoid using Russian gas.
Date: Tuesday, 8 March 2022
UK 2022 and 2023 gas markets were up more than 12% yesterday, pushing baseload power prices up by 7-18% in the front-end, although seasons from Winter 2024 onwards saw declines of 6% or more. Market participants are hedging on expectations that dependence on Russian fuels as well as potential caps on their export will have been reduced markedly by that point, lessening the threat of energy shortages, although an expected EU pre-winter gas storage fill mandate is pushing summer pricing above winter.
A summit of EU leaders this week will agree to phase-out Russian gas dependence, alongside a raft of energy policies which when published in full will give markets direction. The EU today will outline a plan to cut Russian gas imports by two-thirds within a year, but the proposal will rely on historically unreliable curbs to domestic energy usage, such as lowering thermostats and improving insulation. Winter 22 TTF gas closed at €144/MWh yesterday, up from €79/MWh a fortnight ago, with sentiment bullish.
The US is willing to move ahead on a ban on Russia oil without the participation of European allies, after the leaders of France, Germany and the UK appeared lukewarm to the idea. Russia’s response was to suggest that gas taps could be turned off just as easily as a ban emplaced, potentially fuelling rapid price rises and causing further demand-destruction in energy-intensive industries such as raw material and car production., a