February 2022
Market Summary
As we all look on in horror at the Russian invasion of Ukraine, global markets have been thrown into turmoil as prices of oil and gas increased by nearly 40%, and stock markets plunged.
Russia is the world’s second-largest oil producer and the largest supplier of natural gas to Europe, providing about two-fifths of its supply.
Gas flows from them have so far remained at similar levels as seen in previous weeks but the increasing economic sanctions and any long-term conflict will determine any response from Russia on gas imports and the market direction.
To help counteract this the UK received 18 liquefied natural gas (LNG) cargoes throughout February, with an additional 6 expected in March. Having this supply of LNG has been crucial to power and gas markets keeping prices below the £200 MWh and 200p/therm over the past 3 weeks.
The impact of Brent crude oil hitting over $100 per barrel is more bad news for businesses and consumers as petrol and diesel prices on garage forecourts continue to rise.
The only positive news we can report on is the effect storm Dudley and Eunice had on the electricity generation mix. While it caused chaos across the UK, the wind power pushed up the renewable energy mix to 50-60% which reduced the reliance on other energy sources, and lessened price hikes.
Carbon Spot Prices
As oil, power and gas prices have been soaring, carbon was the only energy commodity to see a sharp drop. Last week we saw highs of €96.93 and then a sudden drop to €86.39 which was a fall of 1
0.8% in a day. The surging cost of energy is a blow to economic growth and seen as curbing the need for carbon allowances.
Electricity & Gas Market
Short-term electricity and gas prices were falling to lows of £162 MWh and 173 p/therm throughout the month due to good fundamentals such as LNG, wind and weather.
24th February (when Russia invaded)
Electricity and gas increased 32% and 35% higher, with March prices currently trading at £254 MWh and 284 p/therm.
25th February
Electricity and gas markets retreat to £225 MWh and 263 p/therm (forward curves). Ukraine gas exports jumped almost 38% which helped to soften spot prices.
The market is extremely volatile due to the increasing sanctions on Russia announced over the weekend, the market has shown an increase to Friday’s level, but not reached levels seen on Thursday. That said, talks are taking place today between Ukraine and Russia which might introduce more volatility to markets.
28th February
UK gas and power prices were roaring back up on Monday morning following the intensification of the Ukraine conflict over the weekend and new sanctions being imposed on Russia – including cutting some banks access to the Swift payment system, which the country relies on for gas and oil export revenues. Russian gas exports via Ukraine and into Slovakia remained elevated, with nominations at 80mcm – more than double the average daily volume throughout the year to date.
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 February is 16.45p/kWh (commodity). With the non-commodity added to this, the overall rate will be 23 p/kWh+. The EU price has outperformed the GB market this month.
Oil Market
At the beginning of February brent oil was at €88 p/barrel but has since seen a sudden 19% spike to over $100 per barrel following the invasion. Experts are predicting it could rise far higher as the situation develops further.
On top of that, a bigger impact could come in early March following a meeting between the Organisation of Petroleum Exporting Countries and its partners (OPEC+) which will decide April’s strategy. The current strategy is to add 400,000 barrels of crude oil a day to the markets to maintain high prices while steadily raising supply.