Energy Market Update - Friday 24th March 2023
In the news this week
The Coire Glas hydro project receives major investment boost from SSE. SSE have announced their intention to invest £100 million in a pumped hydro scheme based in Scotland. The technology works by allowing water to flow downhill to produce energy at times of high demand, with the ability to pump the water back up hill in times of lower demand and cheap prices. This should help boost UK’s short term generation capacity and could power up to 3 million homes. Certainty is required around the guarantee of revenue and UK Government support before further progress can be made, while a final investment decision is expected to be made next year, with a view to having the project up and running by 2031. The time frames involved mean there will be no immediate effect on UK power prices, but it is positive for the UK's long-term net-zero targets.
French strikes to continue disrupt their refinery shipments and LNG terminals. Strikes in France, protesting the planned pension reforms have continued to block shipments on Monday, though some refineries operated with a reduced flow. The strikes have now entered their 14th day and have currently taken 3 of 4 of their LNG terminals offline, with strikes across LNG terminals extended to Mar 27. This has led to an increased number of shipments arriving at UK shores and neighbouring countries. Though a spokesperson for Total Energies has stated the company will not give exact figures for how much production has been disrupted. Any further disruptions to France's refinery sector could start to pose some upward pressure on UK energy markets on increased exports to France and reduced global supply.
EU leaders agree to fast-track electricity market reforms in an attempt to tame severe price volatility. On Thursday, EU leaders agreed to fast-track the long discussed reforms to the bloc's electricity market, which should help to reduce the market volatility caused by the reliance on gas-fired generation. The reforms include expanding the use of long- term fixed price contracts, accelerating investment into renewables and the phasing out of gas, while also attempting to limit potential market manipulation. It has been agreed that the reforms should be adopted by the end of this year. However, President of the European Commission Ursula von der Leyen indicated that nuclear generation is likely to play a limited role in to the future. These reforms are unlikely to have too much of an effect on UK energy markets in the short-term, though they could have a long-term bearish effect on reduced European gas-fired generation reliance.
Current Market Drivers
High levels of LNG arrivals look set to persist, with 35 cargoes being confirmed for Mar-23 in total, providing comfort to the market on strong gas supply and therefore providing downward pressure to the near curve.
UK Gas storage levels have recovered and again sit at the highest point for March for the last 4 years, applying bearish pressure to near curve gas prices.
Prompt and future energy contracts saw upward pressure this week on concerns over ongoing French industrial action, which are likely to persist into next week, likely providing some volatility going forward.
Buying pressure ahead of April renewals reaching its peak causing bullish movement in near-curve, quarterly and seasonal gas contracts.