Energy Market Update - Friday 10th February 2023
In the news this week
Reports released this week indicate that Centrica and the government have failed to reach an agreement on expanding the UK's largest gas storage facility, Rough. Centrica had been lobbying the government for consumer - funded minimum revenue guarantees that they say they will need if they are to invest the £150mn required to double Rough's storage capacity to 60bn cubic feet by next winter. The storage site was originally closed in 2017 as it was no longer deemed economically viable by Centrica but was re-opened to a fifth of its former capacity following the start of the energy crisis. This news will likely mean the UK will be left more exposed to global gas prices, particularly global LNG prices, meaning more volatility can likely be expected over the winter months.
Germany are in advanced talks to sign a long-term LNG supply agreement with Oman. According to various reports, Germany and Oman are in advanced talks to sign a 10-year deal for the supply of LNG, as Berlin continues with its plan to diversify away from Russian LNG. Sources close to the negotiations indicate it would be for between 0.5 to 1 million tonnes of LNG per annum. The reports also indicate Germany have been in talks with Qatar as well for additional LNG supplies, but that negotiations are proving lengthy as Doha prefers 20-year contracts, which does not align with Germany's climate goals. This news once again highlights just how much emphasis is being placed on signing long-term LNG supply agreements, as countries within of Europe also attempt to secure alternatives to Russian gas supplies. It also raises a warning that the number of spot cargoes available to the UK for purchase over the coming years may rapidly reduce.
Reports this week indicate that Novatek, Russia's largest Liquified Natural Gas (LNG) exporter, has been in talks with various Indian companies over the supply of LNG and may in fact consider taking payments in rupees. Furthermore, it has also been said that LNG importers from Europe remain interested in Russian LNG, which has not yet been placed under restrictions, and that no buyers with long-term contracts in place wanted to terminate them. Russia supplied Europe with 17 million tonnes of LNG last year, which was up 20% from 2021, despite the decline in Russian pipeline gas imports. Industry sources claim Novatek is close to reaching a deal with Indian company GAIL. This news may provide upward pressure signals to further-dated gas contracts, as it signals that Russia are searching for new LNG buyers, meaning that total Russian LNG exports to Europe could fall as a result
Current market drivers
A total of 15 LNG cargoes are set to dock in the UK over this month, contributing to already solid gas supply fundamentals and likely applying downward pressure to near curve gas contracts.
Wind generation and temperatures are forecast to rise again into next week which will likely apply further downward pressure to day-ahead energy contracts on reduced gas-for-power demand.
If your contract is due for renewal in April and you would like some impartial advice on your options contact the team:
Email: info@dukefieldenergy.co.uk
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