Market Insight

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Wed, 22nd Jan ’25

GAS

  • Volatility persists amid fears over replenishing European storage levels in time for the onset of Winter-25 (coupled with an untimely outage at the Freeport LNG terminal in Texas caused by a winter storm).
  • Whilst current levels are tracking just below the 7-year average (please see chart below), it’s notable that inventories are well below ’23 & ’24 (but still well above ’22).
  • So, what’s the worry? Surely these worries are with us every winter?
  • Well, IF the winter ends and storage is too low, the subsequent demand to replenish will put pressure on supply dynamics (IF this coincides with increased Asian demand come the New Year).
  • Withdrawals have been high this past week, which has given participants the jitters IF it should continue.
  • Bullish momentum has also been stoked following a release by Germany’s natural gas boss (THE) regarding a plan to enable stockpiling for Winter-25 (which bullish participants regard as a concession that a problem already exists, whereas bearish participants accept that pre-emptive measures to ensure organised replenishing of stocks is just prudent).
  • Unfortunately, the market remembers that a similar intervention by THE was primarily responsible for the surge in prices over Summer-22.
  • In summary, the document issued by THE suggests that operators be subsidised to fill storages – given the prevailing premium of Summer-25 versus Winter-25 prices.
  • Looking forward, temperatures are expected to gradually increase back above seasonal norms in most European countries, which should reduce heating demand.
  • Also, steady Norwegian flows are helping to keep a lid on the upside.
  • The front six Seasons are up versus /1-week/1-month/3-months/6-months ago – so it’s safe to say Forward prices are high and wintry.
  • As has been the case since 7th Jan, Day-Ahead prices remain more expensive than Month/Quarter-Ahead, reflecting very short term risk premia (and an underlying sentiment that improved value is available for contracts further out).
  • Monthly Day-Ahead averages for this month are at their peak so far off the back of low temperatures/poor renewables generation – 121.161p/therm (or approx. 4.134p/kwh excluding non-gas).

ELECTRICITY & CARBON

  • As is always the case (to a greater or lesser degree), UK electricity prices are mirroring gas moves – though swings are less impactful (given that end-users pay more for “non-electricity” these days, than for the commodity itself).
  • Today’s UK’s electricity generation mix is again bullish (and very price supportive of Day-Ahead) with renewables contributing only 7%, whilst thermal is at 61% (gas and coal) and low carbon at 17% (nuclear and imports).
  • Monthly Day-Ahead averages for this month so far reflect wind generation still well below seasonal norms (and increased gas-for-power burn) – £123.851/mwh (or 12.39p/kwh excluding non-energy).
  • On the Carbon markets, UKAs remain at a yawning discount versus EUAs – reflecting less scarcity of credits (with free allowances not scheduled to fall in the UK until 2027).
  • As the time of writing, the mid-price is again observing a downward trend channel and its associated support/resistance levels (please see chart below) – mid-price is currently at £32.62/tn.
  • However, positive divergence on the hourly RSI looks bullish – so prices look likely to retest mid-33s.

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