Energy Market Update - Friday 31st March 2023
In the news this week
Companies are considering withdrawing from the UK to capitalise on multi-billion dollar tax incentives in the US. Whilst the government has said that the UK is not trying to compete with Washington in terms of green investments (referred to by Jeremy Hunt as “massively distortive subsidies”), some companies have confirmed they may be willing to withdraw from the UK to instead focus on products in the US. UK start-up companies are developing technologies to assist with transitioning to energy, but without the funding to raise awareness, acquire policy support, and actually have the technologies installed, the UK is likely to have to rely on imported technology increasing the costs involved instead of being a world-leader as we would wish to be. If the UK is not developing sufficient green technology, the reliance on expensive fossil-fuels will remain and energy prices will reflect this.
European countries are seeking to end Russian LNG Imports. Having successfully banned imports of crude oil and oil products from Russia, EU countries have agreed to seek a legal option preventing Russian companies sending LNG to EU nations. Pledges were made to find alternatives to Russian gas, and indeed pipeline imports have dramatically fallen, however LNG imports have increased. Questions have been raised on why the EU should accept supplies of LNG from a country who intentionally manipulated the gas market to the EU members’ detriment. Whilst a sanction requires unanimous approval from all 27 EU member states, the current proposal offers an alternative which should be easier and quicker to implement. If sanctions are to go ahead, this could pose a light upward direction to UK and EU gas markets on the increased competition for alternative LNG supplies.
Fears of a recession returning to market. Waves of optimism followed by sudden periods of scepticism seems to have been the pattern so far in 2023. A few weeks ago, it had appeared that the risk of a recession had abated and confidence in the market was growing. Now, investors are pointing to key market indicators as evidence that the risk remains all too real. The key culprits are the well documented failures of Silicon Valley Bank and Signature bank, which were followed swiftly by Credit Suisse's rescue, as well as China's forecasted rebound to growth currently turning out far lower than expected. The anticipated effect on the energy market is likely to be a downward long-term movement as industries stall and demand for power and gas decrease across the UK and Europe, however this is likely to be abated by any drop-offs in supply as industries at both ends of the chain are affected.
Current Market Drivers
UK Gas storage levels are continuing to climb along with 8 LNG cargoes currently scheduled for Apr-23 helping to flatten the price movement for S-23.
Record numbers of LNG imports in March-23 is suppressing the upward movement in the near curve gas contracts on strong supply fundamentals.
Unions at 3 of the 4 French LNG terminals are planning to extend strike action tomorrow, coupled with further delayed maintenance to EDF's reactors is leading to upward pressure across near curve UK energy contracts.
On Thursday 27th April, Nick Gauntlett, CEO of Dukefield Energy is providing a webinar on the latest energy market news and contracts advice, in partnership with Crescent Purchasing Consortium. Click here to register.