Energy Market Update - Friday 16th June 2023
In the news this week
Volatility within European gas markets this week has highlighted complications for traders, on whether the energy crisis is still severe enough to continue importing additional LNG cargoes during the summer months. Prices have moved to the upside as a result of heat waves in Europe and Asia and outages being extended at key gas fields in Norway, causing concerns among traders. While it still looks like the EU is on track to meet storage targets of 90% by November, traders worry short-term demands could impact the plan. Some of these short-term demands involve a pick-up in Asian demand, more gas for cooling and further disruptions to Russian pipeline gas supplies. Now it’s a guessing game as to whether Europe needs to turn down LNG imports over the summer.
The UK has retained 4th place in EY's ranking of the attractiveness of renewable energy investment markets, with the U.S. remaining on top. Germany has come in 2nd place, committing to 80% renewables in the stack by 2030, while China has dropped to 3rd. Despite concerns about the faltering renewable investment in the UK as a result of Brexit and long-term government support for wind and solar, the UK has maintained its 4th position. Some of this can be attributed to the UK's decision to increase its Contracts for Difference (CfD) auction round allocation to £205m, with onshore wind being included for the first time. Although this is positive for the future of UK energy markets as more renewables in the stack is likely to offer downside, it could also see an increase in volatility, as more needs to be done by the UK government to maintain this position as it faces increasing competition.
East Asian nations, such as China, Japan, Taiwan and South Korea look set to drive coal use for power generation to new highs in coming weeks, with this region already accounting for 60% of global coal emissions. Authorities have already called up on households and businesses to curb power usage to reduce stress on the grid, though soaring temperatures are expected to bring about greater use of air conditioners in the region. Some areas could see temperatures that are 4% or more above long-term averages throughout June, July and August. This rise in coal demand could drastically increase the CO2 emissions in the area making it increasingly more difficult to deal with the current emissions problems. A sustained period of high temperatures could also see a drop in nuclear generation levels and an uptick.
Current Market Drivers
The unplanned outage at Norway's Troll gas field has ended, bringing back an additional 5 mcm/d online, easing supply concerns and reversing the rising trend we witnessed earlier on in the week due to outage.
French nuclear power has remained low this week, with outages taking up to 3 GW of capacity offline and reducing its exports to the continent.
UK power consumption remains roughly 10% below average for this time of year, reducing strain on the power stack and leading to downward pressure being applied to day-ahead and near curve UK contracts.
Wind generation is set to pick up into next week, reducing gas demand in the power stack and providing downward pressure to UK energy contracts..
We are running our last webinar before the summer break on the 29th of June. Nick Gauntlett will provide an energy market update and advice for October renewals contracts. Click here to register.