THE CIU TEAM TAKE A LOOK AT THE CURRENT ENERGY MARKET CONDITIONS
In this edition of CIU’s Energy Market Insight, we review the continued volatility of commodity prices across this summer and consider the factors weighing on the market as we approach the colder winter months.
Natural Gas Prices
Although gas prices have trended down overall across summer 23, this period has been characterised by the apparent nervousness of markets, leading to exaggerated volatility despite the absence of any geopolitical events to compare with recent years. The below graph shows movement in prices for the Winter 23 contract since the start of April:
Markets were buoyed since June by a combination of factors, including European heat waves, reduced French nuclear output, extensions to Norwegian maintenance and strikes at Australian LNG facilities. Clearly this is set against a backdrop of the ongoing war in Ukraine, which has certainly served to amplify the market volatility, with the ongoing absence of Russian gas continuing to create a much tighter global supply position.
At time of writing, European gas storage is at a healthy 94% of capacity, well ahead of target, with 1.8 billion cubic meters being stored in Ukrainian facilities due to friendly economics. The risk of sending gas to Ukraine at this time has been questioned by several commentators. The UK is faring less well, with storage falling to 62% as we balance reduced flows from Norway due to repeated extensions to outages for summer maintenance.
There has been ongoing industrial action at Australian LNG sites for more than a month, with more strikes planned. This has obviously restricted output, leading to rising spot prices on the Asian LNG market and generating further unease with European market participants.
Power Prices
UK baseload power has largely continued to track gas prices. The following graph again highlights movement across this summer for the Winter 23 contract:
In addition to the impact of gas pricing, mid-summer saw heatwaves across Europe driving air conditioning demand, plus there was uncertainty around the French nuclear schedule. In terms of the latter, there has been positive recent news with output from French nuclear plant currently on track to be 50% up on Sept 22, with a much stronger forecast into 2024. However, we remain reliant upon gas for power generation, and gas markets seem set to continue to dictate the tempo for electricity pricing.
In Summary
By comparison to recent years, there has been a lack of seismic events directly impacting energy markets across 2023. In late August 2022, the Winter 23 baseload contract closed at a record high of £583 £/MWh. It is now trading at less than a fifth of that value. But the ongoing restricted global supply of natural gas will mean prices are unlikely to return to levels seen pre-pandemic.
Versus what went before, 2023 may have been a comparatively smooth ride so far. But there remains a healthy fear of the unknown. Obviously, the situation in Ukraine continues to be of huge concern. But European markets also fear any notable pickup in Asian LNG demand, which would have an inevitable knock-on effect here.
The amplified market reaction this year to seemingly innocuous news has made contract placement for the average consumer a challenging affair at best. Achieving an early lock-in of contract renewals ahead of this winter has been a popular approach, and may be your best route to a good night’s sleep! Commercial & IndustriaI Utilities is here to support with an array of services designed to minimise the impact and stress of your energy renewals. Plus, we offer several products to reduce the administrative burden of managing your invoices across the year.
Please don’t hesitate to contact us on 01484 506 412 if you need some help, or drop us an email to info@ciutilities.co.uk