UK Energy Market Update
April 2024
Market Summary
As we have now entered ‘injection season’ in Europe, EU gas storage saw its first major injections this month. At the end of April, EU gas storage stood at 62% full. This is above the 5-year average of 47% and the 60% seen at the same stage last year. Storage is expected to reach 100% before 1 November.
LNG imports to Europe continued to fall in April, reaching their lowest level since October 2021. The main drivers behind the decline are increased demand from Asia and reduced demand within Europe from both domestic and industrial sectors.
The Freeport LNG terminal in Texas experienced major unplanned maintenance due to mechanical issues. This resulted in a significant reduction in capacity, followed by over a week of nearly zero production. This certainly was unwelcome news at European Gas Hubs, particularly with the UK being the largest consumer of US produced LNG.
Tensions in the Middle East have continued to create uncertainty in the market, with analysts expressing concerns that the conflict could spill beyond the region’s borders. This increased with the missile strike launched by Iran against Israel. Israel’s muted response eased tensions somewhat and lead to the belief that wider conflict in the region can be avoided for now.
Russian attacks on Ukrainian energy infrastructure continued this month. The Zaporizhzhia nuclear power plant, which is under Russia’s control, was reportedly hit by three drone strikes. Moscow has accused Kiev of the attacks, which Ukrainian authorities have denied. The International Energy Agency (IEA) has warned the risk of a significant nuclear incident has heightened, although reports indicate that radiation levels in the area have not increased since the strikes. According to Ukraine’s energy minister, Russian strikes have targeted 80% of Ukrainian thermal power plants – as well as half of its hydroelectric facilities – in the past couple of weeks, as the targeting of energy infrastructure has intensified.
Global LNG consumption has surged by more than 40 billion cubic meters (bcm) since the conflict between Russia and the Ukraine began, with imports peaking at 557 bcm in 2023. Europe emerged as a major contributor to this increase in demand, representing over a quarter of the world’s LNG trade.
Russian pipeline gas deliveries have plummeted to unprecedented levels, with only 25.9 billion cubic meters (bcm) delivered, a stark contrast to the 170 bcm delivered in 2019. This decline in pipeline gas has not hindered their LNG supply, as Europe maintained an import level of approximately 6 bcm higher in 2023 compared to 2021.
During a meeting in Turin at the end of April, the G7 group - consisting of the US, UK, Japan, Canada, France, Italy as well as the EU – agreed to end coal-fired power generation by 2035.
Net Zero News
National Grid has officially inaugurated Viking Link, a £1.8 billion project linking the UK with Denmark, marking a significant advancement in renewable energy infrastructure. Stretching across 475 miles, Viking Link aims to supply clean energy to 2.5 million UK households.
Recent research conducted by the SME Climate Hub indicates a growing emphasis on addressing climate change among small businesses. The survey, conducted across 44 countries and 25 sectors, unveiled a significant increase in the prioritization of greenhouse gas emissions reduction among small and medium-sized enterprises (SMEs) in 2023.
The UK has achieved a significant milestone on its path towards reaching net zero emissions, as recent data reveals a 53% reduction in greenhouse gas emissions from 1990 to 2023. This signifies the country reaching the halfway mark in its pledge towards achieving net zero emissions.
The latest government energy report, spanning from December 2023 to February 2024, detailing shifts within the UK's energy sector compared to the preceding year. Major power producers witnessed a 1.9% decrease in electricity generation, with notable declines in coal, gas, and nuclear sources. In contrast, renewables experienced a remarkable 12% surge, reaching a record volume and share.
According to a recent study by Hydrogen UK, the hydrogen sector in the UK has the potential to create 64,000 jobs and contribute over £7 billion in gross value added (GVA) annually by 2030.
The government has unveiled proposed measures designed to enhance consumers' access to cost-effective energy deals, while also strengthening cybersecurity and grid stability. These initiatives, integral to a broader strategy to modernize the energy system, seek to establish a smarter and more flexible electricity network.
According to a recent report by eEnergy, there is an urgent requirement for a £5.4 billion investment in schools across the UK to achieve net zero targets. The report highlights concerning energy consumption trends, with 30% of energy being utilized during closures, and 70% of schools still relying on outdated lighting.
The Association for Decentralised Energy (ADE) has released a new report proposing a strategy to tackle energy inefficiency in British homes. The report emphasizes a notable financial disparity between energy-efficient homes and their inefficient counterparts, with the latter potentially facing annual costs up to £900 higher.
Electricity and Gas Prices
April was another month where prices went up slightly. Factors behind this include geo-political tensions in the Middle East and Ukraine, low LNG supply and Nordic pipeline and field maintenance. Healthy gas storage and mild weather are factors keeping prices in check. Day ahead prices continue to be extremely volatile.
Flexible Purchasing
EPEX Price
Some of our flexible purchasing customers are buying on EPEX, a European auction for power. Because they auction every hour of each day, customers get the “market average” price as opposed to a fixed-term contract over e.g. a 12-month period. Being on this product means that you will pay the average of each day for the month and once the market falls the price will follow.
The EPEX price finished the month with an average of 5.38 p/kWh (commodity). With the non-commodity added to this, the overall rate will be around 16.28 p/kWh+.
Carbon Prices
In April, European carbon (EUA) prices surged by over 11% for the second consecutive month, mirroring March’s trend. EUA’s continue to rise in a very close correlation with TTF gas prices (Dutch gas), despite negative fundamentals (increasing supply and decreasing demand). With prices continuing to rise, it is likely that the industrial sector will use this an opportunity to buy in anticipation of meeting future carbon targets.
Oil Market
5th - Oil prices surged to their highest level since October, with Brent crude currently trading at $90.75. Ongoing production cuts by OPEC and heightened uncertainty surrounding Israel and Hamas are driving the bullish sentiment in the oil markets.
8th - Data from ICE indicates that the Brent Crude benchmark contract rallied once more, marking the sixth consecutive session of gains, and surpassing the psychological level of $90.
12th - Oil rose around 1% on geopolitical tensions in the Middle East but posted a weekly loss on a bearish world oil demand growth forecast from the International Energy Agency (IEA) and worries about slower U.S. interest rate cuts.
18th - Oil prices are holding steady after a decline in yesterday's session. The bearish movement was primarily influenced by concerns about lower demand this year, as new data indicates that global oil consumption has been approximately 200,000 barrels per day below its forecast for the year so far. Additionally, US crude inventories surged by 2.7 million barrels, well above investors' expectations of a 1.4-million-barrel increase.
19th - Oil prices have risen following reports of Israel launching an attack on Iran. While there are currently no direct threats to oil and gas supply, market volatility persists as analysts express concerns about the potential escalation of the situation to neighbouring countries.
24th - Brent Crude Oil prices have risen, currently trading at $87.52. The upward movement is primarily fueled by fresh data indicating a surge in demand. Additionally, US crude oil inventories have decreased by 3.2 million barrels, contrasting investors' expectations of an 800,000-barrel increase.
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