Energy Market Update December 2022
Current market drivers:
The current weather forecast remains the primary driver, with temperatures continuing to drop and wind generation below seasonal norms, this is adding upward pressure to immediate energy markets.
French nuclear capacity remains significantly below the five year average, with large scale maintenance works still ongoing. This is providing upward pressure to near curve UK energy contracts.
24 Liquefied Natural Gas (LNG) cargoes are confirmed to arrive in the UK over the course of December, while Norwegian flows and UKCS (UK Continental Shelf) production look to be holding steady, providing solid gas supply.
A more detailed look:
Earlier this week, the UK and US pledged to maintain the current high levels of liquified natural gas (LNG) trade between the two countries as part of a new ‘energy partnership' that aims to accelerate the transition away from Russian gas as well as accelerate the push to net zero. The initiative aims to keep LNG trade between the two nations at the levels seen in 2022 for the foreseeable future. Neither the UK nor the US have state-backed energy companies so LNG between the two nations is usually controlled by market forces, but they have now both pledged to ensure “the market conditions for long-term security of supply”. This news will likely provide downward pressure to energy future dated into 2023 and beyond, as it means strong US LNG imports should remain a constant for the foreseeable future.
However, towards the end of this week, The Freeport LNG depot announced it was once again delaying there start of the LNG facility to the end of the year after the large explosion that occurred June22. This pushes back the previous estimate for mid-December issued last month by roughly two weeks. Restart plans must first be approved by the US safety regulator Pipeline and Hazardous Materials Safety Administration (PHMSA), which has not yet signed off on a complete repair plan. However, some analysts are forecasting that it could take the until January and February for PHMSA to review and approve any restart requests needed for Freeport to complete the required works. This news will likely contribute upward pressure to in near curve energy markets as the delay will leave less LNG available for European countries seeking to replace Russian gas.
On Wednesday, the first UK coal mine in 30 years, which will be located in Whitehaven was given the go-ahead by the government in a controversial decision that has been delayed several times. However, it is thought the £165mn mine will be used to provide coking coal for use in the UK steel industry, rather than for burning in power stations and would therefore lower the UK’s coal importing bill. Naturally, the project faces huge opposition from environmentalist groups, who argue it will likely make it harder for the UK to hit its legally binding "carbon budgets", which are set to be reduced gradually towards the 2050 net zero target. This news may provide downward pressure to domestic coal markets on greater supply security, particularly at a time when coal is likely to become more prevalent in the UK power mix as a result of the current energy crisis.