Market Insight

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Thurs, 1st Aug ’24

GAS

  • As evidenced in the charts below, the front 3 Seasons of gas delivery are now up on the month, whereas the front 3 Seasons of electricity remain down on the month – reflective surely of the heightened risk-premium now being built-in to gas off the back of fears of supply tightness should Middle East tensions contribute further to global geopolitical uncertainty.
  • Frustratingly for buyers who’ve opted to allow summer conditions to deepen before pulling the trigger on hedging the front seasons, markets have picked up some bullish momentum today, with Winter-24 up by approx. 5p/therm versus the start of the week.
  • The stories remain the same against a backdrop of relatively benign summer conditions –  however, the strike on the Hamas leader in Tehran increases the risk of direct confrontation between Israel and Iran.
  • With Iran expected to respond to the latest air attacks, market participants assign a potentially higher value to the transportation of gas globally.
  • Our UK system was long at this morning’s open (supply outstripping demand forecast) – allowing for injections and exports.
  • Norwegian flows remain strong – though the conclusion of scheduled summer maintenance is diarised to happen at month-end which is likely to reduce flows out of the continent into the UK.
  • Also, our summer temperatures continue to disappoint and are expected to fall at the end of the week to below seasonal norms (which will see some increased LDZ heating demand).
  • Thankfully, increased wind outputs are forecast for the same period which should mitigate gas-for-power burn.
  • Extreme global temperatures continue to sustain cooling demand across Asia, heightening competition (and prices) for LNG cargos.
  • Our partner, the USA, is choosing to ship less LNG to Europe, instead opting for the higher prices available in Asia – meaning of course that Europe remains bound to the remnants of Russian gas imports.
  • Despite common misconceptions,  Russia has maintained a consistent supply of LNG to Western Europe since the Ukraine invasion – were this to end now, markets would spike further – a prospect/opportunity that will not be lost on President Putin…
  • Over the course of Summer-24 so far, demand has remained low against a backdrop of comfortable supply – as such, replenishing gas stocks has not posed any problems.
  • Europe remains on track to achieve 100% storage levels by Winter-24 (early Oct ’24).
  • European storage is at 85% fullness versus the 5-year average of 78%.
  • On the hedging side, we’re now on the other side of Summer-24 – with 123 days having elapsed, and 61 remaining.
  • Clients with open volumes for Winter-24 are now in the minority – with most having opted to close-out Positions given the ongoing geopolitical uncertainties and winter conditions now on the horizon.
  • Monthly Day-Ahead averages for Jul ’24 achieved 75p/therm (or circa. 2.5p/kwh excluding non-gas).
  • Monthly Day-Ahead averages so far this month are on target to achieve 85p/therm (or circa. 2.9p/kwh excluding non-gas).

ELECTRICITY & CARBON

  • Looking to the continent, European near-term delivery prices increased again yesterday as the supply/demand balance remained tight.
  • But the upside potential is now limited, and a downward correction cannot be ruled out assuming the heat goes out of market participants’ over-reaction to geopolitical worries.
  • On the Carbon markets, EUA continue their bullish rally (correlating with recent gas price rises).
  • Back in the UK (and despite EUA’s bullish tone), UKAs (UK Carbon Allowances) have been slow to react – instead almost retesting £38/tn to the downside before being dragged back up by EUAs’ bullish fervour  – now trading at circa. £40/tn.
  • At the time of writing, our electricity generation mix is neutral in nature today with renewables contributing 31%, thermal at 30% (gas and coal) and low carbon at 26% (nuclear and imports).
  • Monthly Day-Ahead averages for Jul ’24 achieved £69/mwh (or approx. 6.9p/kwh excluding non-energy).
  • Monthly Day-Ahead averages so far this month are on target to achieve £78/mwh (or approx. 7.8p/kwh excluding non-energy).

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