A lot has happened over the last few months, I have tried to summarise as much as possible.
Initial Market increase in April Summary:
- 15 suppliers out of business – mutualisation
- Non Commodity Charges – overall increase of 60%
- Low Carbon & Renewable generation schemes, Targeted Charging Policy – increased prices
- Covid – 19 – plethora of maintenance and supply issues.
- Further 7 energy suppliers have declared closure – further mutualisation
- Wholesale gas prices soar – 250% since the beginning of the year, 70% rise since August as economies re-open after COVID lockdowns.
- Colder winters in Europe and particular Asia (Experienced a La Nina in January/February) Asia took up LNG supply, being the premium market, forcing us to rely on our storage stocks (January/February and again in April/May) These storage stocks have not currently been fully replaced ready for the coming Winter and European storage is sitting at around 75% (Well below 2018 – “beast from the east year”)
- The addition of the Nord Stream 2 gas pipeline (will double gas supply to Europe) is complete. This was originally expected to supplement supply headed into this winter – EU regulations and US pushback have caused further delay.
- Russia, as of today, may be able to ramp up flows through Poland and Ukraine over winter – after having stabilised their domestic supply.
- Lower than average wind generation – lowest since 1961 or a drop of 1 Gw, increased the demand for natural gas to produce electricity
- The failure of one of Britain’s most important power cables/vital interconnector between the UK and mainland Europe means it will be offline until late October and only half of its two gigawatt capacity available until March 2022.
- Several gas platforms in the North Sea and Electrical Nuclear plants were closed for maintenance. These planned outages have been more prolonged that usual.
The UK energy market has been placed under significant pressure by an unprecedented and unpredictable combination of events. This has all contributed to a scarcity in available generation capacity and a continual increase in rates.
At the moment there is massive uncertainty headed into winter with further volatility expected. Availability in LNG/Nord Stream 2/Wind generation/US projects & Export capacity/Completion of maintenance/Increased supply from Russia as promised by Putin – would all alleviate the market (As we saw today) and prevent the current increase and risk being forced down the line past the end of 2021 onto 2022 – if the majority of the bullish risks stay with us, and we get a colder than usual winter, further depleting storage, we will need to look to summer 2022 to replenish storage thus drawing out the overall recovery and affecting further dated agreements.
While the above are most certainly short term effects, if not alleviated timorously they will have a long term knock on effects. As it stands the market will be higher than “Pre-Covid days” but hopefully some assemblance of sanity will return early 2022.
The need to monitor the market, close fast in bear phases, drop winter months, have set end dates, reset agreements, take advantage of annual renewal times etc etc as I have discussed at length with many business’s has become glaringly clear during these volatile times, it will become even more important moving forward.
As always, we will continue to do our best to provide informed advice. Putting your business first.
Here’s hoping for a warm winter and bear energy markets to help the economy.
Please do get in touch if you have ANY concerns.
Shirley Ralfe, Energy Account Director