Russian energy giant Gazprom suspended all gas deliveries to Finland after Helsinki refused to pay in roubles by the 20th of May deadline. This also came just two days after Finland formally applied to join NATO. Fortunately, Russian gas supply only accounts for 5% of Finland’s energy consumption so has not caused disruption or affected UK commodity prices as expected.
UK gas storage is currently high at 92% and Liquefied Natural Gas (LNG) imports remain consistent. Whilst the UK gets a very small amount of natural gas from Russia it is heavily reliant on Norway for a third of its supplies. The EU receives 40% of its gas from Russia so if this was stopped there is concern that Norwegian supply would be diverted from the UK leaving us with a shortfall. The government is reviewing several options to cover the winter including re-opening a giant gas storage facility in Yorkshire and extending the life of Hinkley Point B nuclear plant in Somerset.
More concerns are raised as French-owned EDF has cut its electricity output target for a third time this year following maintenance issues with its nuclear plants. This may result in a tighter UK power grid this summer, especially during periods of hot weather.
Electricity and Gas Prices
Despite the volatility of the energy markets, electricity and gas markets have seen falls throughout May with commodity prices experiencing a downturn of 11% and 12% respectively. This was helped by the UK exporting LNG gas to other countries because of limited local storage facilities.
The long-term view on prices is still looking problematic and trading exceptionally high. Winter 22 has increased by 2% for gas and 6% for electricity which is threatened further by the uncertainty of future gas storage levels.
Overall short-term prices have been favourable more recently and look positive going into July as the weather is expected to be above the seasonal norm over the coming weeks.
Our flexible purchasing customers are buying on EPEX which is 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 eg a 12-month period whilst prices are so high. 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 currently for May is 12.21 p/kWh (commodity). With the non-commodity added to this, the overall rate will be 21 p/kWh+.
EPEX has traded well this month due to the weather and demand for power and gas which resulted in some days trading below £100 MWh. We haven’t seen these sorts of levels since September 21.
We use Heron for the DA (day ahead) and secured June at 4.02 p/kWh (gas) due to using the product BoM (balance of month) which secured the rest of the month at these favourable rates.
Carbon Spot Prices
Carbon started trading in May initially increasing by 10% but then dropping by 12% following an announcement that the European Commission plan to utilise their market stability reserves to sell allowances. Overall, carbon closed to similar levels seen in April with only a 3% gain.
Carbon prices have given back gains over the last couple of weeks, with both EU and UK contracts holding above the €/£80 per tonne level. The pound has lost some value against both the euro and dollar recently meaning the UK contract is about a 17% premium to the EU counterpart.
ECF1! 83.52 ▲ +2.81% Dan (tradingview.com)
Brent crude oil has been bullish this month, increasing by 17% since the 1st of May, partly owing to the ongoing possibility of a European ban on Russian oil imports.
Prices remained between $100-110 per barrel but have returned to $120 per barrel for the first time since March. This has been driven by the easing of lockdown restrictions in Shanghai and Beijing which could lead to higher energy demand from China.
This increase has pushed diesel and petrol prices up to record highs on the forecourts, adding further financial pressures for businesses and drivers.