UK Energy Market Update
June 2024
Market Summary
June saw major Norwegian gas disruptions affect supply to the UK. A crack was discovered in a two-inch pipeline on board the Sleipner Riser platform, the connecting station between the Nyhamna plant (gas processing plant) and the UK. This caused the suspension of the Langeled North and Langeled South pipelines connecting Nyhamna on Norway’s west coast with the Easington terminal in Britain. The outage led to reduced flows to UK and the continent, which in turn caused a bullish effect on prices. There were further unplanned maintenance issues at Visund, Ekofisk, Skarv & Dvalin gas facilities. This supply crunch serves as a reminder of how dependent Europe currently is on Norwegian gas.
Europe and the UK’s weak worldwide LNG demand has continued and leaves us vulnerable to price shocks, such as the one experienced when Norway’s Nyhamna plant went offline this month. The main drivers behind this lacklustre LNG supply are substantial EU gas storage levels, warmer European weather and unusually high temperatures across Southeast Asia increasing demand for cooling.
Germany's state-owned Uniper won an arbitration case against Russia's Gazprom PJSC (export arm) for failing to deliver contracted volumes following the Ukraine invasion and subsequent termination of Nord Stream flows. The tribunal, held in Stockholm on June 7th, ordered Gazprom to pay €13 billion in damages and lost revenue. It also affirmed Uniper's right to terminate supply contracts with Gazprom, a step Uniper took just days after the ruling. This case sets a legal precedent for other European firms, such as Austria's OMV and Slovakia's Eustream, which are currently bound by long-term supply contracts with Gazprom. This could potentially tighten the supply and demand balance across the continent.
The EU has agreed on its 14th package of sanctions against Russia, aimed at closing loopholes related to LNG transshipments and restricting European firms abroad from accessing the SPFS banking system. The SPFS was established by Russia and its allies after the 6th round of sanctions barred most major Russian banks from the universal SWIFT system. The EU has sanctioned 27 vessels, most of which are believed to be part of Russia’s ‘shadow fleet’ of oil and gas tankers. These vessels have been working to circumvent previous EU sanctions. Some have been operating without active transponders and transferring cargo to ‘licensed’ vessels near European ports to pass through undetected.
Following Russia's invasion of Ukraine, Europe became heavily reliant on US LNG, which accounted for 20% of the region's supply in 2023. However, for the first time in two years, Russia has surpassed the US as Europe's primary gas supplier, despite several EU nations pushing for sanctions against Russian LNG. US LNG dropped to 14% of Europe's total supply, while Russian gas and LNG increased to 15%.
UK system operator National Gas released its annual Winter Outlook Review and Consultation, presenting various best and worst-case scenarios. The report suggests that the UK is likely to continue being a net exporter to the EU through its three primary interconnectors.
Net Zero News
A group of 112 cities committed to eliminating their net greenhouse gas emissions by 2030 will require a combined investment of 650 billion euros ($695.83 billion) to meet this pledge, according to a European Union initiative announced on Wednesday.
European Union leaders will advocate for an increased emphasis on manufacturing green technologies in Europe, as competition intensifies with China and the United States in producing electric cars and wind turbines, according to a draft statement.
The food sector is a major contributor to the climate and nature crises. Our methods of growing, distributing, consuming, and disposing of food are responsible for one-third of total annual greenhouse gas emissions. Food systems are the leading cause of accelerating biodiversity loss and account for 70% of freshwater withdrawals.
Over 60 climate organizations and leading trade unions have urged the next government to deliver a "clear and funded" transition plan for workers in the offshore oil and gas industry, including those in the North Sea.
A new initiative to transform UK emergency services has been launched. Led by Flexible Power Systems (FPS) in collaboration with Cenex, the project aims to enhance the efficiency of emergency operations by integrating zero emission (ZE) technology.
Starting in 2026, British wind and solar farms exporting electricity to continental Europe could face CO2 fees under the EU's carbon border tax, despite these energy sources being emission-free.
Labour has unveiled plans to create a new publicly owned company, Great British Energy, as part of its manifesto. The company aims to boost investment in clean, home-grown energy production and will be owned by the British public.
According to a report by management consultancy Oliver Wyman, the global market for carbon dioxide (CO2) removal credits could expand to as much as $100 billion annually between 2030 and 2035, up significantly from $2.7 billion last year, provided that barriers to its growth are effectively addressed.
Electricity and Gas Prices
The trend of increasing prices came to a halt this month. There were several negative factors influencing prices this month, such as several Norwegian gas outages, LNG facility closures as well as geo-political influences. But the bears gained control of the market as warm temperatures, very healthy EU gas storage and low demand outweighed all the negative factors to keep prices down.
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 7.17 p/kWh (commodity). With the non-commodity added to this, the overall rate will be around 18.07 p/kWh+.
Carbon Prices
European Carbon ended its three-month gaining streak in June, dropping by approximately 9% to mark the first monthly decline since February. The month closed at around EUR 66, reflecting a year-to-date decline of about 14%, though it remains up roughly 31% from the February low. As geopolitical risks have continued to ease, volatility in the EUA price has decreased, reaching a roughly three-month low. This reduced volatility has led investment funds to rebuild short positions, which had dropped to a seven-month low in May.
Oil Market
4th - Brent crude oil prices continued to fall by 3.4%, even though OPEC has decided to cut output levels and amidst ongoing geopolitical issues. Market concerns persist about potential oversupply later in the year.
7th - ICE data indicates that the Brent Crude oil benchmark contract increased by approximately 1.9% compared to its previous close.
13th - Brent crude oil dropped by 0.5% to around $82.20. This decline was mainly driven by traders' concerns over potential future oversupply, following news that U.S. fuel and crude oil inventories had increased more than anticipated. However, bullish indicators remain due to ongoing conflicts in the Middle East and a recent incident involving a Greek-owned coal transport requiring rescue near the Red Sea.
18th - Brent Crude extended its rally to six consecutive days, reaching its highest level since April 30th. This surge is driven by increasing market sentiment that interest rates in the US and Europe may soon decrease, potentially boosting oil consumption.
25th - Brent crude prices are supported by heightened fuel demand as the US enters its peak summer driving season. US crude oil and fuel stocks are anticipated to have decreased week over week, with crude oil supplies expected to have dropped by 3 million barrels.
28th - The Brent Crude benchmark contract experienced a 1.3% day-on-day increase, driven by escalating geopolitical tensions in the Middle East and worsening Houthi attacks in the Red Sea, which continue to support global oil markets.
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