Energy Market Update - Friday 21st April 2023
In the news this week
Germany to close remaining nuclear power stations. Following extended periods of pressure from the country’s anti-nuclear movement Germany confirmed they are set to close their final 3 nuclear power stations. Originally scheduled for 2022, the closures were postponed following the reduction of Russian gas supplies into Europe triggering concerns of an energy supply shortfall in winter. The final shut down has raised concerns over both the long-term energy security of Germany, as well as their levels of carbon emissions which are naturally set to rise as their reliance on burning high-polluting fossil fuels increases to fill the gap left behind. This may have the benefit of expediting Germany’s switch to renewable energy and battery storage however the increased demand for coal is likely to increase the cost of coal in the UK and push up the price of EU carbon permits.
Following years off only producing oil, Shell have upgraded their Pierce field location to allow for the simultaneous production of gas. Operations have now been restarted and once the production is up to speed, they are expecting to produce 30,000 barrels of oil equivalent per day–this is a notable increase, more than doubling the output levels compared to pre-development numbers with more gas now being produced than oil. To bring the gas to shore, a new subsea gas export line has also been installed, connecting to the already existing SEGAL pipeline system. The oil will continue to be transported by tanker. The increased supply to the UK should help alleviate some of the longer-term supply security concerns with slight bearish pressure expected as a result.
EU countries cut their gas consumption in winter 2022, beating a target to cut gas use by 15%. Overall gas use in the EU dropped by 17.7% from August to March, compared with the five-year average for the same period. This goal emerged after Russia slashed gas deliveries following its February 2022 invasion of the Ukraine, triggering a European energy crisis of scarce supplies and record high prices. Europe experienced an unusually warm winter, including spells of record-breaking temperatures that helped curb the demand for gas home heating. Europe’s lower winter gas usage was the result of a combination of weather, policies to tackle the energy crisis, and industries curbing production in response to high gas costs. Lower gas consumption has helped EU countries end winter with unusually high storage providing bearish pressure across the near-curve.
Current Market Drivers
The total LNG cargoes confirmed for Apr-23 has now reached 33 which provides very strong supply fundamentals and will help offset the near-curve bullish action currently being witnessed.
Fears of longer-term energy supply security may now be having an effect as we look out to S-25 gas contracts and beyond as the market cautiously awaits our performance across the coming winter.
EDF have taken a further reactor offline in France at the same time as industrial action is causing delays to the planned maintenance at other sites potentially increasing their reliance on UK exports.
Steady temperatures and a forecasted spike in wind generation is continuing the downward movement experienced this week in the day-ahead baseload 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.