Market Summary
September 2023
September began with the news of strike action in Australia at two Chevron LNG facilities. These facilities account for 7% of global LNG supply and 47% of Western Australia’s local gas supply. A partial strike began on the 11th while full strike action was planned for the 14th. The strikes went ahead as planned, although a deal was reached on 22nd to end the strikes as workers accepted a proposal regarding their pay and working conditions.
This month saw several planned and unplanned outages in Norwegian gas fields. Unplanned outages were experienced at Aasta Hansteen, Dvalin & Oseberg fields, while planned outages at Troll & Kvitebjorn gas fields had to be extended. After a staggered return to full capacity, the Troll field had to be shut down for a 2nd time this month with this outage only lasting a day. These outages significantly reduced supplies of Norwegian gas into the UK.
It was announced that the UK has approved the development of the Rosebank oil and gas field, located around 80 miles west of Shetland. The field contains around 300 million barrels of oil and is the UK’s last major undeveloped oil site. According to the UK government, increasing oil production will enhance energy security, although the majority of the oil is anticipated to be sold to Europe and subsequently reimported in the form of refined products.
In the first half of 2023, the United States assumed a dominant role in global LNG exports, propelled by robust demand, particularly from Europe. The average daily volume of US LNG exports stood at 11.6 billion cubic feet, marking a 4 percent uptick compared to the same period in 2022. This surge in US LNG exports was primarily attributed to the commencement and resumption of operations at Freeport LNG.
The EU aims to halve its Russian gas imports, decreasing them from 80 billion cubic meters to 40 billion cubic meters this year. Gas consumption is projected to increase by 10 billion cubic meters during the winter, primarily because of the upcoming closure of German lignite and nuclear power facilities. Nevertheless, this growth is anticipated to be constrained by reduced consumption in residential, commercial, and industrial sectors. The EU's Energy Chief, Kadri Simson, has advocated for a decrease in the volume of LNG imports from Russia to the EU. Since the Nord Stream pipeline was taken offline last September, the inflow of this fuel has steadily risen. Simson is encouraging EU member states to gradually reduce their dependence on Russian LNG and explore alternative sources.
Gas storage inventories are at good levels for this time of the year – currently EU storage is sitting at 95%, above its 5-year average. Which is helping to cap concerns of short-term supply disruption.
Energy Bill Discount Scheme (EBDS)
Energy and Trade Intensive Industries (ETII)
Eligible businesses had until the 25th of July to apply.
Net Zero News
The financial consequences of the UK's pledge to reach net-zero carbon emissions by 2050 have attracted close examination, as a recent study has disclosed an astounding cost estimate surpassing £4.5 trillion. This information arises from a fresh report published by the think tank Civitas, which suggests that this expense could equate to an annual burden of over £6,000 per household until 2050.
Sanquhar II Wind Farm, originally planned to become the UK's fourth-largest onshore wind project, consisting of 44 turbines with a total capacity of 308MW, has been placed on indefinite hold. This onshore wind venture in southern Scotland has been paused due to a significant rise in project costs. The developer, Community Windpower, has officially announced the project's suspension following a steep escalation in estimated development expenses, which jumped from around £300 million to £500 million.
SSE has introduced a £15 million relief fund designed to aid businesses facing the challenges of escalating energy expenses. This fund is available to a range of business clients served by SSE Energy Solutions, primarily targeting those with extended fixed contracts who committed between August 1 and December 31, 2022. The timing corresponds with the period when wholesale energy prices reached historic peaks in the latter part of 2022.
According to recent research conducted by Oxford University's Smith School of Enterprise and the Environment, Britain has the potential to meet all its energy needs through wind and solar power by 2050. The study suggests that the UK's wind and solar resources could generate a significantly higher amount of energy than originally anticipated for 2050, nearly ten times the current electricity demand. This could result in an annual energy production of up to 2,896TWh, compared to the projected demand of 1,500TWh. The report also forecasts that offshore wind would contribute the majority of this energy, approximately 73%, with onshore wind accounting for around 7% while utilizing only 0.07% of the country's land.
The European heat pump industry has expressed alarm over a decrease in sales, a development that has the potential to impact the European Union's ambitious energy objectives. As part of its initiatives to bolster energy self-sufficiency and diminish carbon dioxide emissions linked to heating and cooling systems, the EU has established a goal of installing an extra 60 million heat pumps by 2030. Data from the early months of 2023 reveal a decline in the heat pump market, with several European nations witnessing reduced sales.
Electricity and Gas Prices
Volatility remains in the gas and electricity markets this month. The strike action in Australia caused bullish trends to occur, until an agreement was reached and then we saw bearish movements. The continuous and repetitive outages in multiple Norwegian gas fields also added to the bullish trends seen through most of the first half of the month. Once the very large field at Troll was gradually returned to full operations near the end of the month, this eased supply fears as well as prices. Front month prices saw the biggest gains of the month while further out prices eased due to very positive EU gas storage levels.
Flexible Purchasing
EPEX Price
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 currently is 8.35 p/kWh (commodity). With the non-commodity added to this, the overall rate will be around 21.25 p/kWh+.
Carbon Prices
Carbon prices started the month at €86.02 and closed at €83.11 after having an up and down month.
A downward trend has hit the European carbon market over the last two week with prices falling from €89 a tonne to €83 a tonne. China’s demand is still at record lows which is affecting their economic output, traders were expecting output to pick up this summer however this is later than predicted.
Oil Market
7th - Worries about China's demand rebound have led to a decline in crude oil prices. The market's volatility is exacerbated by China's mixed data, with reports revealing an approximate 8% decrease in total exports in August compared to the same period last year and a 7.3% drop in imports. Nevertheless, there's a positive sign in the form of a 30.9% increase in crude oil imports to China, indicating a potential recovery in demand.
15th - Oil prices are currently trading at $94.11, enjoying an uptick. This increase is linked to encouraging Chinese economic data that has surpassed predictions. August saw both Chinese industrial production and retail sales grow at a faster rate than anticipated, signifying a stable demand recovery in China.
18th - Oil prices have experienced a three-day consecutive increase and are presently trading at $94.69. This upward trend can be partly attributed to the potential for supply reductions from both Saudi Arabia and Russia, which could lead to a market shortage of 2 million barrels per day in the upcoming fourth quarter of this year. Investors are closely monitoring updates regarding US interest rate policies and eagerly awaiting fresh economic data from China.
25th - Amidst a blend of news from China and OPEC, oil prices have maintained their stability. Presently, Brent crude oil is trading at $92.47. China, the world's largest importer of crude oil, reported a 0.3 million barrels per day increase in oil demand, which has added a downward influence on prices. Conversely, OPEC's supply constraints persist in pushing prices upward, with Saudi Arabia and Russia opting to extend their production cuts through the end of the year.
29th - Brent crude oil prices are on the upswing, driven by the ongoing improvement in China's demand. At present, the crude oil price stands at $93.24. Recent macroeconomic data from China indicates a significant surge in fuel demand, along with an uptick in manufacturing activity for September. As the world's second-largest economy, China's stabilization is likely to contribute to increased demand.
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