March 2022
Market Summary
The ongoing war in Ukraine and western sanctions imposed on Russia have resulted in another volatile month in power prices.
So far, UK gas reserves are reasonably resilient and continue to be topped up by increased LNG imports from Norway.
Europe’s low storage and strategy to cut its reliance on Russian fossil fuels by two-thirds by 2023 are being supported by the global community. Another positive move has come from the Norwegian gas producer Equinor who has been granted permission to significantly increase production to Britain and Europe over the summer.
The cost of war has impacted on the environment too, with the extortionate cost of gas shifting generation to coal which has also had a knock-on effect to the carbon spot price. On top of this, the UK’s renewable energy mix was down during the month as the wind fell well below the seasonal norm.
Carbon Spot Prices
Carbon was trading in a bearish sentiment of around €55 per tonne at the beginning of March but was short-lived, increasing by 47% to €81. Because gas prices surged to such high levels during the month it became cheaper to use coal for electricity generation instead of gas. The price of using dirty coal instead of a more “carbon-friendly” fuel was the main reason for the sharp rise.
Electricity Market
Short-term electricity prices opened at £218 MWh but quickly escalated to £420 MWh for March due to the current difficulties between the West and Russia. Prices have remained volatile during March and April but have currently halved to £234 MWh.
Gas Market
Short-term gas prices for March were trading at highs of 539p/therm (18.39p/kWh) but have stabilised over the past few weeks to 268 p/therm.
UK gas storage is at 78%, down from 86% in February but an increase of LNG gas cargoes will help to shore up reserves. European storage sits at 26% and now appears to align with the 2016-2017 trajectory. Norwegian gas producer Equinor has been granted permission to significantly increase production over the summer to top up depleted storage across Europe and Britain.
EPEX Price
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 March is 25.2p/kWh (commodity). With the non-commodity added to this, the overall rate will be 32 p/kWh+.
Oil Market
The global sanctions on Russian supply caused a decade-high spike in brent oil in March from €96 to upwards of €137 per barrel.
Global oil production was further impacted following attacks by Yemen’s Houthi rebels on Saudi oil facilities which pushed the price of brent crude oil up further.
It was brought down briefly following new coronavirus cases which threatened to dampen demand, but this was short-lived.
Major oil producers are likely to stick to their scheduled output target increase of around 432,000 barrels per day when OPEC+ countries and allies including Russia meet.
Fears have been raised however following a statement from Russia’s Deputy Minister that the shipping of 1 million barrels a day through the Caspian Pipeline Consortium could be cut for up to two months while repairs are made to loading facilities. This has been viewed as a potential backlash by Moscow against western sanctions.