LNG Imports Sees Drop In Wholesale Costs
As we enter the final month of the “Winter” season, the steady increase in costs that we saw throughout February look to have subsided, largely because of large quantities of LNG imports into Europe and negotiations to end the Russia/Ukraine conflict.
Prices are slightly higher than the 2023 average, however, the import of LNG has eased fears about storage over the summer months, with storage levels lower than usual for this time of year.
Ongoing conflicts still have a large impact on cost and with the unpredictable Trump administration we could see the markets become volatile again at any given moment.
Market Drivers
Gas
Falling
The European Commission announced this week new intermediate targets that EU countries are required to meet in 2025 to ensure gas storage facilities are filled to at least 90% of capacity by 1 November 2025, previously this target was required to be met by the beginning of September.
Positive developments in US LNG exports continue as Venture Global's Plaquemine's facility receives approval to increase export capacity by 13%, enhancing shipment availability.
Rising
Following a tenfold increase in imports during February, Ukraine is expected to continue to importing gas throughout March. Beyond March, import volumes remain unclear, due to ongoing Russian missile attacks on energy infrastructure impacting the level of local production.
European energy markets are expected to remain challenged throughout the year amid heightened geopolitical and economic uncertainty, emerging from winter with lower-than-average gas storage levels. Global gas markets are unlikely to see significant easing until well into 2026.
Electricity
Falling
The energy price cap is set to raise by an additional 2% in April to 5%, which may curb domestic demand and reduce overall consumption.
Set for release on Wednesday, the EU's Affordable Energy Action Plan includes an Energy Union task force to reduce power price differences across the EU, tackle speculative trading, and propose financial instruments to decouple power prices from high gas prices.
Rising
18GW of Ukraine's power generation capacity is under Russian occupation, increasing reliance on imports and alternative power sources in the region.
The UK government needs to double its current investment in local distribution networks to £50bn in order to meet its decarbonisation targets. Failure to do so could risk derailing clean power roll-out and stifle economic growth.
Market Focus
The EU must reinforce its energy union to reduce prices.
In order to bring down electricity prices, the EU Energy Commissioner stated that "the EU need to further integrate energy policy and make better use of cross-border infrastructure". Set for release next Wednesday, the EC Affordable Energy Action Plan includes an energy union task-force to reduce power price differences across the EU. In the draft, the EC plans to issue guidance to national governments on reducing peak energy demand during price spikes, with options such as incentivising users to cut consumption and grid operators managing demand shifts.
The plans also unveil power grid tariffs designed to encourage grid users to take advantage of the cheapest power sources available. In order to ease price spikes from grid bottlenecks, the draft recommends temporarily increasing cross-border trading capacity. The plan aims to keep the EU competitive while also decarbonising in line with climate commitments.
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