Energy Market Update - Friday 3rd March 2023
In the news this week
Natural gas demand in China is expected to grow this year as the country's industries return to service, but whether the country's LNG demand will rebound is largely down to spot prices. China's LNG imports dropped by 20% last year as a result of elevated spot prices and COVID-19 lockdown measures. As China's economic activity ramps up following the end of lockdowns, its domestic LNG demand could rise by 10% in 2023, though if spot LNG prices remain elevated, we don't expect a quick rebound of LNG purchases in China. If China's LNG demand does remain supressed to pre-2022 levels in 2023, this could pose downward pressure to UK gas markets, with reduced competition for the super-chilled commodity, especially as the UK's LNG demand is set to rise.
UK Government expected to maintain support for households. Although the Treasury declined to comment directly, it is being reported that several energy suppliers are preparing April bills in advance with the view that government support will be maintained, very close to, if not identical to, the current levels. The current level of support is a £2,500 per annum cap on typical household bills, not including a £400 discount for winter which is also currently to be discontinued. The financial assistance is to be scaled back next month, but this proposal is facing pressure from fuel poverty campaigners. Whilst the clear outcome of ongoing support is lower household bills, a knock-on effect is potentially a slightly greater demand on the network as consumers may be somewhat willing to consume power in greater volumes with the additional financial security provided being confirmed.
The Met Office is warning of the potential for wintry weather as we advance through March. A "highly amplified" jet stream, mixed with an area of lower pressure over the Mid-North Atlantic, is set to push air up into Greenland and then backdown towards the UK next week. The likely outcome of this weather event is for cold air and snow in parts of northern and eastern England. Changes to the pattern may extend the weather conditions to greater areas of the country. This would put pressure on the levels of UK Gas Storage to meet LDZ demand but could be mitigated by current storage levels higher than at this point in the year compared to the past 3 years. This could lead to increased gas-for-power demand and by extension put upward pressure on UK energy markets.
Current Market Drivers
16 LNG cargoes confirmed for Mar-23 already, coupled with strong Norwegian exports is increasing supply prospects and offering downward pressure to near curve UK gas contracts.
The return of the 595 MW Torness-1 reactor is offering more downward pressure to prompt UK energy contracts, on reduced gas-for-power demand.
Storage levels remain elevated above the 5 year average as we head into the Summer heating season, offering downward pressure to closer-dated seasonal UK gas contracts, on reduced injection demand.
Wind generation and temperatures are expected to remain below seasonal norms into next week, increasing gas-for-power demand and limiting the downward pressure in prompt UK energy contracts.
On Tuesday 7th March, Nick Gauntlett, CEO of Dukefield Energy is providing an energy market update and contracts advice webinar in partnership with Crescent Purchasing Consortium. Click here to register