UK Energy Market Update
July 2024
Market Summary
July saw the Labour Party win the general election by a landslide and form a new government. The government will invest £8.3bn in GB Energy, a state-owned company, to build offshore wind farms on British seabeds owned by the Crown Estate. This partnership aims to develop 20GW to 30GW of new offshore wind capacity by 2030. The funding is expected to attract £60bn in total investment for these projects. Prime Minister Keir Starmer described the initiative as accelerating our energy security and pledged it would reduce energy costs. The government also intends for GB Energy to facilitate faster development of renewable energy projects by partnering with private investors. Energy Secretary Ed Miliband additionally plans to remove obstacles to onshore wind developments.
The landfall of (Category 1) Hurricane Beryl on the Texas coast on the 8th of July resulted in widespread damage and power outages. The Freeport LNG export terminal, the second largest of its kind in the US, was shut down the day before as a precautionary measure. Due to the power failure via surrounding infrastructure damage, the facility had to remain offline as it typically requires 690 MW to run their liquification trains. The phased return to full operations took some time and resulted in the cancellation of 10 scheduled LNG shipments. The facility was able to resume full production by the end of the month.
EU aggregated gas storage continues to see steady injections, although injections were impacted by the issues surrounding Freeport LNG this month. Injections are averaging around 0.25% per day and storage finished the month around 84.5% full. Following the current trend, storage may hit the mandated 90% target by late August/early September, well before the 1st of November deadline.
On the 19th of July, the Black Swan Crowdstrike software update caused widespread IT outages, affecting many different industries. This includes the energy industry as market participants experienced a range of technical issues from brokers to trading platforms. Access to trading systems was limited on the day, however some were able to trade with shipping and power sectors said to be predominantly operating as normal.
The end of July saw geopolitical tensions escalate in the Middle East, after Hezbollah launched a missile attack in the Israeli controlled Golan Heights region of Syria that resulted in the death of 12 people. Israel retaliated by launching a strike on the Lebanese capital of Beirut, targeting Hezbollah commander Fuad Shukr. Hamas then claimed that Israel had assassinated its political leader, Ismael Haniyeh, in Tehran, Iran. Market participants will be monitoring this situation carefully as a wider conflict in the region will have negative effects on the oil and energy markets.
A study by the think tank Ember found that, for the first time, wind and solar power generated more electricity than fossil fuels in the EU during the first half of 2024. This change led to a 17% reduction in CO2 emissions compared to the same period in 2023. Wind and solar accounted for 30% (386 TWh) of electricity, while fossil fuels fell to 27% (343 TWh). This trend is driven by policy responses to the Russian invasion of Ukraine and falling solar panel costs, indicating a potential long-term shift towards renewable energy in the EU.
Net Zero News
With strong support from British businesses, Keir Starmer now has the opportunity to rebrand Labour as the new party of business by collaborating to advance the green economy.
Britain's renewables industry has urged the new Labour government to boost the country's renewable auction budget by hundreds of millions of pounds to help meet its offshore wind target and the broader goal of decarbonizing the power grid.
The Department for Energy Security and Net Zero has announced the titles and responsibilities of its new ministerial team.
Royal Mail has announced plans to cut its domestic flight operations by half. By early 2025, the company will discontinue 18 domestic flights as part of an effort to improve operational efficiency and reduce its environmental impact.
Virgin Money has launched a new mortgage product called The Retrofit Boost, in partnership with Hive, to help homeowners improve their properties’ energy efficiency. This initiative aims to address the growing demand for sustainable housing solutions.
Ofgem has identified major challenges facing the gas distribution (GD) and gas transmission (GT) sectors as the UK progresses toward its net zero targets.
Prime Minister Keir Starmer and Finance Minister Rachel Reeves aim to attract tens of billions of pounds in private capital to boost new and growing industries, accelerate the economy, and meet net-zero targets.
Offshore Energies UK (OEUK) has unveiled a strategy to help the UK achieve net-zero power by 2030. The plan, detailed in a report by AFRY Management Consulting, outlines the challenges and objectives. By 2030, the UK will need to add over 90 gigawatts of new generation capacity, enough to power more than 90 million homes.
According to its sustainability report, the Mercedes Formula One (F1) team has significantly reduced emissions and set ambitious targets for the future. The report highlights a 10% overall reduction in emissions in 2023 compared to 2022.
Electricity and Gas Prices
July was a volatile month for prices in the UK. Intra-month volatility saw prices dip as the month began before recovering these loses toward the end of the month, resulting in gas contracts rising 1.3% while power fell by 1.5%. Some of the key drivers included the Labour Party’s overwhelming victory in the UK General Election, which spurred major green energy initiatives; ongoing conflicts in the Middle East, impacting global energy security; and Hurricane Beryl’s effect on U.S. LNG exports.
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 6.98 p/kWh (commodity). With the non-commodity added to this, the overall rate will be around 17.88 p/kWh+.
Carbon Prices
The European carbon market was relatively stable for the month of July, moving within a small range and averaging the month at €68.2. Price movements within the market were primarily driven by energy market shifts and concerns about the economic outlook. At the beginning of the month, higher energy demand due to summer temperatures led to price increases. By mid-July, European energy prices, especially for natural gas, had risen, supporting the market. However, towards the end of the month, reduced energy demand and uncertainty about the economic outlook pressured the market.
Oil Market
1st - The price of Brent crude oil has increased due to analyst predictions of a supply shortage, as peak summer demand continues to deplete stockpiles. Additionally, OPEC+'s decision to cut production levels amid global economic concerns and ongoing geopolitical tensions has contributed to the rise in prices.
9th - Global oil prices dropped to one-week lows, marking their third consecutive session of losses. This decline was driven by diminishing concerns about damage to oil infrastructure from Hurricane Beryl. Brent fell 0.65% today to $85.12, also the lowest since July 1.
11th - The increase in Brent crude oil prices has been primarily driven by the impact of Hurricane Beryl and ongoing reductions in US inventory. Crude oil storage in the United States has fallen by 3.4 million barrels to about 445 million barrels. Additionally, the storm in Texas has caused power outages, delaying the increase in oil refinery output.
16th - Oil prices dropped to four-week lows, extending their losses for the third consecutive session. This decline was driven by worries over Chinese demand, following data that revealed China's GDP growth slowed more than anticipated in the second quarter. Brent fell 1.6% to $83.33 a barrel, the lowest since June 17, with a session-high at $84.82.
22nd - Oil prices fell as markets reacted to China’s monetary policy decisions. The People’s Bank of China reduced the 7-day reverse repo interest rates for the first time since August 2023 and lowered one-year borrowing costs from 3.45% to 3.35% in response to slow growth data. Brent September futures fell 0.3%, or 23 cents to $82.40 a barrel.
31st - Global oil prices rose 3%, rebounding from eight-week lows and set to make their first gain in four days. This increase came amid heightened geopolitical tensions in the Middle East following the assassination of Hamas leader Ismael Haniyeh. The Iranian Revolutionary Guards have accused Israel of being responsible for the killing, and Iranian Supreme Leader Khamenei has vowed a response. Brent rallied 2.75% today to $80.73 a barrel, with a session-low at $78.50.
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