Energy Market Update - September

 
 
 

August saw a rise in wholesale costs as tensions between Israel and Iran continued to grow and the conflict in Ukraine/Russia rages on. In September we did see prices fall, however, with the recent escalations in the Middle East some of those gains in the market have been lost.

The target of Gas storage being at 90% capacity for Winter in Europe was achieved on 19th August, well ahead of 1st November deadline which is a huge positive for the markets in the coming weeks.

Market Drivers

Gas

 
 

Falling

  • The bulk of Norwegian maintenance has been completed through without issues.

  • Weakening Asian LNG demand and the finalisation of the large Egyptian tender are easing LNG market competition, loosening global LNG supply dynamics.

Rising

  • The emergence of the La Niña weather pattern may indicate a cold Q1-25 and heightened hurricane activity in the US, potentially resulting in significant storage withdrawals and restricted LNG supply.

  • Azerbaijan are unlikely to offset the expected halt of Russian gas flows via Ukraine, once the transit agreement expires citing limited capacity to increase exports to Europe.

  • As the conflict between Israel and Lebanon continues to escalate this is increasing market risk premium.

Electricity

 
 

Falling

  • The UK electricity supply is at a healthy level ahead of Winter 2024, despite the imminent closure of the last coal-fired plant (Ratcliffe). Additional gas-fired capacity has increased the UK's overall net energy capacity.

  • The Viking Link interconnector capacity is set to increase in 2025 by around 40%, improving the UK's import capacity.

Rising

  • The UK carbon benchmark has risen this past week, whilst gas markets remain an overall supportive element to baseload contracts, continuing to provide direction.

  • Challenges remain for the UK in securing essential materials for new renewable projects, raising concerns about potential construction delays and higher costs.

Market Focus

Market traders and analysts express doubt that Azerbaijan can offset the expected halt of Russian gas flows through Ukraine, citing limited capacity to increase exports to Europe. The country lacks sufficient gas supplies to make up for the 12 bcm Russia delivers through Ukraine, with Azerbaijan delivering 7.8 bcm to Europe so far this year and targeting 13 bcm by year-end. Further predictions indicate Azerbaijan could boost output by only 3-4 bcm over the next few years, with a key problem being a lack of long-term contracts with Europe to encourage investment into new production and export capacity. European nations, which predict falling gas demand as they decarbonise, are discouraged from entering into these long-term agreements. This could leave them more exposed to LNG markets, a generally more costly and less reliable form of supply.

info@dukefieldenergy.co.uk

0345 4022 461


 
Daniel Lunn