UK Energy Market Update
August 2024
Market Summary
August saw the ongoing tensions in the Middle East continue to affect the market. These tensions reached boiling point this month after the assassination of a top Hamas military leader in the Iranian capital of Tehran at the end of July. We are yet to see clear retaliatory action from Iran as promised by the country’s leadership in the wake of the event. Around mid-month, ceasefire talks between Israel and the US began in the Qatari capital of Doha to try and broker a peace settlement between Israel and the Hamas administration in Gaza. This deepening conflict threatens Israeli gas exports to Egypt and Jordan, potentially tightening the global LNG market.
The other major geo-political issue affecting the energy market this month was Ukraine’s border incursion into Russia’s Kursk region. It is reported that as many as 1,000 Ukrainian troops crossed into Russia with the intention of seizing part of the Kursk Oblast. Ukrainian forces confirmed they had taken control of the Sudzha nomination point, situated within Russia’s Kursk region. A significant portion of the last remaining Russia-EU pipeline gas passes through the Sudzha transfer station, so fighting in the vicinity threatened to halt flows. Several EU countries such as Austria and Slovakia are still very much dependent on Russian gas flowed via Ukraine although flows through the nomination point have been largely unaffected to date. Russia has continued to launch attacks on Ukrainian energy infrastructure.
On the storage front, the EU’s aggregated storage surpassed the 90% goal on 19th August, more than two months ahead of the 1st of November target. This is just behind last years pace when stores reached this level by 16th August and should help provide some level of assurance as we move towards the colder months. EU storage finished the month at circa 92%, which is around 6.5 percentage points above the 5-year moving average.
The German government issued an arrest warrant for a Ukrainian national suspected of sabotaging the Russia-Germany Nord Stream pipeline in September 2022. The individual, who previously worked as a diving instructor, allegedly dived 80 meters to plant four controlled explosives on the seabed, causing significant damage. According to reports from German newspaper Die Zeit in June 2024, Germany requested Poland, where the suspect was believed to be living, to execute the warrant. However, it is believed that the suspect had already fled the country and is currently evading authorities.
The UK risks losing £3.5-£8 billion in revenue between 2025 and 2030 if its carbon market remains separate from the EU's, according to a report by Frontier Economics. The report suggests that linking the UK carbon market with the EU's would help achieve decarbonisation goals more easily and improve trade efficiency. It also argues that a combined market would strengthen financial risk management and boost industrial competitiveness. Additionally, the UK's energy market could face costs of £200-£800 million due to the EU’s Carbon Border Adjustment Mechanism (CBAM) but linking the markets could help reduce this impact.
Net Zero News
The new UK government has a key opportunity to address climate change and the shift to a low-carbon economy. With the right policies on climate finance, the UK can become a leader in net zero finance, driving innovation and boosting economic growth. Focusing on climate finance will help meet global climate targets and build a stronger, more resilient, and fairer Britain.
A marine conservation group, Oceana UK, is taking legal action against the UK government for issuing new oil and gas exploration licences. They argue that ministers failed to properly consider the impact on marine life. The lawsuit targets 31 licences granted in May under the previous government as part of the North Sea Transition Authority's latest licensing round.
Britain has announced a subsidy scheme worth up to £5.5 billion ($7.2 billion) to support the construction of the Sizewell C nuclear plant by France's EDF in southeast England. This is part of the country's plan to meet climate goals and strengthen energy security by building new nuclear plants to replace its older ones.
EDF Renewables UK plans to add over 300MW of battery storage to the UK energy grid in the next 12 months. The company is working on six projects, including sites in Braintree, Essex, and Indian Queens, Saint Austell, along with recently completed facilities in Sundon and an approved site in Dorset.
The UK Government has announced plans to move forward with developing a data-sharing system for the energy sector. This follows a feasibility study on creating a digital platform for energy data sharing, conducted by Ove Arup, Energy Systems Catapult, and the University of Bath.
Nearly two-thirds of the sustainability goals set by large UK businesses are expected to be achieved by buying carbon credits. On average, these companies plan to spend £20 million each on these credits, which allow them to offset a certain amount of their greenhouse gas emissions.
https://www.energylivenews.com/2024/08/16/uk-businesses-rely-on-carbon-credits-to-hit-green-targets/
Ofgem has launched a consultation outlining its proposals for a regulatory approval and funding framework for onshore electricity transmission projects recommended by the Electricity System Operator (ESO). This initiative supports the ESO's plan to connect 21GW of new offshore wind power and strengthen the UK's electricity network to help meet the government's decarbonisation and net zero goals.
In 2023, more than 40% of the world's electricity was generated from zero-carbon sources, with wind and solar accounting for nearly 14% of the total.
Electricity and Gas Prices
August was another volatile month in the energy market. The major geopolitical events unfolding in the Middle East and Russia had a bullish effect on prices, as did the supply disruptions experienced with Norwegian gas supply and LNG supply in the U.S. and Australia. Factors supporting prices this month were very healthy EU gas storage, high level of renewables (34% of UK energy in August came from wind) and stable demand.
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 5.95 p/kWh (commodity). With the non-commodity added to this, the overall rate will be around 16.85 p/kWh+.
Carbon Prices
In August, the European Union Allowance (EUA) prices averaged €71.46 per tonne, up 0.9% from the previous month. Prices hit a two-month high due to rising natural gas prices, geopolitical risks, and increased energy demand from high temperatures. However, by the end of the month, lower energy demand and economic uncertainty put pressure on the market, leading some investors to take profits and push prices down. With the EUA compliance deadline next month, demand is expected to rise, likely driving prices back up.
Oil Market
2nd - Oil prices fell by more than $1, marking the fourth consecutive weekly decline, after data showed the US added fewer jobs than expected in July, raising concerns about economic growth and demand for crude.
8th - US crude inventories fell for the sixth week in a row, exceeding most analysts' expectations. The Energy Information Administration (EIA) predicts that demand will continue to grow for the rest of the year, while supply levels are expected to stay stable.
12th - Brent crude oil has risen for the sixth consecutive day, now trading at $80.20. Markets remain tense after Israel conducted more airstrikes on a school facility in Gaza, heightening tensions between the two sides. Uncertainty also lingers as the market waits for Iran's response to Israel's airstrike.
20th - According to data from ICE, the Brent Crude benchmark dropped 2.5% due to unexpectedly low demand in China and news that Israel had accepted a US-mediated "bridging proposal," raising hopes for a possible ceasefire between Israel and Hamas and reducing geopolitical tensions in the Middle East.
27th - The Brent Crude benchmark contract climbed 2.3% to $79.02 per barrel, according to ICE data, driven by signs of an improving economic outlook in the United States.
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