Energy Market News Summary
After another turbulent week for the energy market, we have put together a summary of the major new stories.
European wholesale energy prices have risen significantly since the Russian invasion of Ukraine started a month ago, consequently prompting the EU to make plans to diversify away from Russian energy supplies. As part of this plan, the US has agreed to send additional supplies of Liquefied Natural Gas (LNG). For 2022, the value will be an additional 15 billion cubic metres (bcm), with plans to increase to an additional 50 bcm. Whilst this represents the first steps in diversifying away from Russia, 15 bcm represents only around 3% of EU demand (based on 2020 figures), whilst 50 bcm represents around 9%. As Europe receives around 1/3 of its gas supplies from Russia, the additional volume from the US is still quite far off what will be needed to stop reliance on Russia.
There is good news with regards to the UK's offshore wind generation, with capacity set to increase. The UK currently hosts around 10.5 GW of offshore wind capacity in operation, with another 3.2 GW in partial operation. This capacity is set to increase eight-fold, with the total pipeline now in excess of 86 GW, which includes projects fully and partly commissioned, at all stages of construction, and certain projects which have secured leases or planning permission. In the last year, the UK's offshore wind pipeline has increased sharply, with 33 GW of capacity being added to the pipeline in the last 12 months. This trend is likely to continue, with energy companies like Shell announcing plans to increase investment in the UK's renewable energy space. An increasing share of renewables in the UK provides downward pricing potential to UK energy markets, with greater cheap renewable energy available.
Due to the conflict in Ukraine, the Russian Rouble has come under strong inflationary pressure, at points sitting 85% below the pre-conflict value due to the impact of sanctions. In response, Putin has announced that he will be changing the currency of payment for Russian gas contracts to Rouble's for hostile countries. However, with existing contracts being agreed bilaterally with a pre-decided currency, Russia would be at risk of voiding contracts if purchasers do not agree to pay in Roubles. In addition, the current sanctions packages on the Russian finance industry would also make payment in Roubles much more difficult. This has provided strong pressure, with prices rising on concerns that Russian gas contracts could be voided.
We hope this gives you an insight into this week’s energy news and how it affects the current markets.
Dukefield Energy are here to support and offer advice to all customers, we understand that there is a lot to digest. Anyone that has any concerns or would like some advice please contact the team who will be more than happy to help.