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Volatility Remains Within the Gas Market.

Market Summary

October 2023

September saw several weeks of continual disruptions to Norwegian gas flows to Europe and the United Kingdom. Since the start of October gas flows have been consistently increasing. There were several supply disruptions this month, including the Osberg and Aasta Hansteen fields, but nowhere near as much as seen in September.

US energy giant ConocoPhillips announced on Friday that production has started ahead of schedule at Norway’s new Tommeliten Alpha gas condensate field which is estimated to hold reserves in the region of 150 million barrels of oil equivalent- including 6-9 billion cubic metres of natural gas.

In broader energy news, a report by the Institute of Public Policy Research has said that the UK was falling behind Europe in developing green industries.

In Australia, a risk to LNG supply returned as union members at Chevron LNG facilities confirmed they would be resuming strikes after accusing Chevron of reneging on commitments made last month. Once again threatening global supply as the northern hemisphere approaches heating season. The strike was called off a few days later after reaching a new agreement with Chevron.

There was a leak in the Baltic Connector pipeline, which supplies gas from Finland to Estonia. According to sources, the pipeline has an estimated annual capacity of 2.6 billion cubic metres, and repairs might take several months depending on the severity of the leak. There were initial fears that the damage caused was intentional, as is suspected with the damage to Nord Stream 2 in September 2022. After several weeks of investigation, the damage was confirmed to have been caused by an anchor from a Hong Kong-registered vessel, quelling initial concerns that it could have been sabotage.

Gas contracts experienced several price spikes due to supply uncertainties caused by the Israel-Hamas conflict. Furthermore, the Israeli government has ordered Chevron to halt production at the Tamar field in Israel. Egypt's gas imports from Israel have paused; usually Egypt imports gas from Israel and exports part of it as LNG to Europe. Israel's decision to halt natural gas exports from its Tamar field in the Mediterranean Sea to Egypt is negatively affecting both domestic electricity generation and LNG exports to Europe. Gas supplies from the Tamar field has been reduced to zero from 800 million cubic feet per day.

The UK has experienced mild temperatures at the start of heating season leading to record low demand for gas for this time of year. EU gas storage has reached new peaks; it is currently 99% filled. This is higher than the last recent peak, which was noted in 2019. The UK has now filled 100% of its capacity.

Russia now accounts for around 10% of France's gas supply. Russia's share to Europe's gas supply is approximately 15%, a significant drop from the 40% supply it was responsible for before the war began.

Energy Bill Discount Scheme (EBDS)

Energy and Trade Intensive Industries (ETII)

Eligible businesses had until the 25th of July to apply.

Net Zero News

Europe's supply of liquefied natural gas (LNG) encounters obstacles as it contends with heightened competition from China and surging prices within the gas market. A recent study from Cornwall Insight indicates that China's escalating gas demand, driven by its post-Covid-19 economic rebound, may further intensify the competition for LNG resources.

The shift towards achieving net-zero buildings has the potential to generate over 247,000 environmentally friendly jobs exclusively within the United Kingdom. This finding originates from a research collaboration between Schneider Electric and Boston University, which delves into the employment possibilities stemming from the adoption of rooftop solar panels, heat pumps, and energy storage batteries.

Prominent figures in various industries, such as E.ON UK, Kingfisher, Santander, Knauf Insulation, and Lloyds Banking Group, are rallying for a pressing nationwide campaign to facilitate the reduction of carbon emissions from residential properties. They are putting forward the "Rebate to Renovate" program, urging the government to offer a stamp duty rebate to individuals purchasing properties and subsequently enhancing their Energy Performance Certificate (EPC) rating within a two-year timeframe. This initiative seeks to motivate homeowners while simultaneously tackling the problem of inefficient housing stock.

An estimated 80 million windows in the United Kingdom need to be replaced to conform with the government's net-zero objectives. A report named 'A Window of Opportunity,' co-released by the Glass and Glazing Federation (GGF) and British Glass, highlights that the UK's housing inventory currently ranks among the least energy-efficient in Western Europe and has shown one of the weakest performances in carbon reduction since 1990.

The Scottish solar energy sector has voiced its endorsement of the Scottish Government's ambitious commitment to significantly enhance renewable energy production by 2030. The Scottish Government has vowed to establish a solar power capacity ranging from 4 to 6 gigawatts (GW) by 2030. This strategy represents a noteworthy advancement in Scotland's pursuit of renewable energy goals.

Electricity and Gas Prices

Volatility remains in the energy markets this month. The potential strike action in Australia, the Israel-Hamas conflict and Norwegian gas field maintenance created bullish sentiments this month. While mild weather, strong fundamentals and record high EU gas storage have assisted the bearish moves this month. Curve prices have started to see pricing below the £100 MWh mark which shows positive fundamentals within the market as risk starts to drain out of the prices. Day ahead prices have been very volatile this month, ranging from £133 to £39 MWh, mainly down to the events which has occurred.

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 8.27 p/kWh (commodity). With the non-commodity added to this, the overall rate will be around 21.17 p/kWh+.

Carbon Prices

The United Kingdom is grappling with the ramifications of its decreasing and erratic carbon pricing structure, which could discourage investments in clean energy, yield considerable revenue shortfalls for the Treasury, and impose substantial tax liabilities on UK companies exporting to Europe by 2026.

Energy UK has published an analysis that emphasizes the consequences of the sharp decline in carbon prices within the UK throughout 2023. The analysis draws attention to the possible ramifications should this matter go unaddressed, especially considering the European Union's forthcoming implementation of a carbon border adjustment mechanism next year.

Oil Market

4th - Brent crude oil plummeted to $86 per barrel, after reaching $94 per barrel last week, despite US statistics showing that crude oil inventories fell by 4.2 million barrels last week. OPEC+ will meet today, but output levels are expected to remain unchanged.

6th - Russia's recently announced that it will lift its ban on pipeline-based diesel exports. Given that roughly three-quarters of Russia's diesel exports in 2022 went through pipelines, it is extremely significant for Russia.

9th - Oil prices climbed in reaction to news of conflict between Israel and Palestine. Brent oil is currently trading at $86.84. The market was cautious due to concerns that these disputes may have an impact on the Middle East, particularly on big oil exporters such as Saudi Arabia. Analysts have also stated that if conflict spreads to nearby countries like Iran, roughly 3% of world oil supplies might be impacted.

12th - Oil prices dropped as a result of new information concerning US oil inventories. According to the American Petroleum Institute, oil stockpiles climbed by around 12.9 million barrels, well above the anticipated rise of 500,000 barrels per day.

13th - Increased tensions between Israel and Hamas contribute to driving up oil prices. The price of Brent crude oil stood at around $87.98. Although the conflict between the two nations has no direct effect on the supply of oil, the markets are nevertheless volatile since it could impact nearby oil-exporting countries including Iran and Saudi Arabia.

19th - Reports of fighting between Israel and Hamas have dominated global news and European energy markets are understandably on edge due to the region’s heavy reliance on Middle Eastern oil exports. A possible disruption to oil supplies has resulted in a net increase of circa 6.5% on the Brent Crude benchmark contract over the past week.

23rd - Brent crude oil traded lower, at $91.82. There has been some market relief following political attempts to diffuse the crisis between Israel and Hamas. However, supply disruption concerns remains if conflict spreads into the Middle East, which is the world’s largest oil supplying region.

26th - On the back of new inventory data, Brent crude oil continues to trade lower. Crude reserves increased by 1.4 million barrels this week, above analysts’ forecasts of a 240,000-barrel increase; analysts feel this is a signal of sluggish demand.

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