Latest Market Update - May 2022

Current market drivers

Temperatures are forecast to drop below seasonal norms alongside a forecast of plunging wind generation into next week which is providing upward pressure (costs) to immediate UK energy contracts due to increased household heating demand.

A drop in pipeline gas supplies to the UK is also providing increased upward pressure to UK gas contracts that are up for renewal in the next 3 months. However, a lower demand for LNG in China is providing downward pressure UK gas contracts. 19 confirmed or delivered LNG cargoes for May ‘22 are up from May ‘21.

A look in a bit more detail

Russian deputy prime minister has said that half of Gazprom's 54 EU clients have now opened special bank accounts with Gazprombank for the payment of Russian gas. These special bank accounts allow payment of euros into one account, which is then converted into roubles in a separate account, allowing both EU and Russian requirements to be met. The deadline for immanent payments was 20th May, otherwise countries risked being cut off from Russian gas supplies. Some clients are still unsure on whether opening these accounts breaches EU sanctions, however EU clients opening accounts with Gazprombank shows a positive sentiment. The continuation of Russian gas deliveries will provide some downward pressure on UK gas contracts on greater supply security.

China is on track to post their first major decline in imports of Liquified Natural Gas (LNG) this year, as high prices and weakened manufacturing due to lockdowns reduced demand for LNG. China was the world’s top LNG buyer last year, however, sank to number 2 in early 2022 with an 18% decrease in imports and now with further lockdown measures in place, this has caused gas demand to fall even further. Prices are also now so high that dominant state importers in China are expected to minimise spot purchases and rely on slightly cheaper longer-term deals to cut back losses. This is providing relief to the global gas markets as this is freeing up supplies of LNG for major buyers in Europe, who are urgently trying to wean themselves off Russian supplies, making the situation less tense than it could have been.

At Dukefield Energy, we understand that this is a concerning time for customers looking at their energy contracts this year and even April 2023. We are here to support and to help manage the risk of high prices and a volatile market. If anyone has any concerns or just wants some advice, please don’t hesitate to contact us.