A volatile and bullish gas market has been the primary driver, with near-dated contracts more than doubling over the past 5 months. But what has caused such a rise across European gas hubs?
- EU gas storage was left depleted after a cold and prolonged winter, whilst further gas supply tightness has led to EU storage facilities struggling to restock. EU inventories currently stand at c.65%, far below normal.
- LNG competition has been high over the past 10 months, with growing demand in Asia attracting cargos away from Europe. Asian spot prices have been maintaining at least a c.10p/th premium to EU prices to ensure consistent supply.
- Russian pipeline supplies to NW Europe have dropped since January 2020 after Russia agreed a new gas transit deal with Ukraine, with flows down by 15-20% from 2018 levels. Russia has shown unwillingness to ramp-up flows to NW Europe despite recent high prices as they await the completion and certification of Nord Stream 2 (55bcm/yr capacity).
Supply expectations going forward will remain the key driver to future price movements as we approach winter, with Nord Stream 2 news and LNG imports the two key areas to monitor. European storage is set to require injections into October/November in order to refill, leaving gas and power prices extremely sensitive to an early cold snap without an increase in Russian pipeline flows or LNG.
These points only scratch the surface of the current market drivers, so I’m sure you are wondering how you can stay on top of the wholesale energy price as it changes, especially in uncertain times like these?
Energy is a complex business, but hopefully we can make it simpler. You can keep informed on the changing prices through us at EDF. Join our free bi-monthly webinars on the UK Power Market with James Chaplin, Power & Gas Trader in the Portfolio Hedging team.
The next one is coming soon, on 8 September 2021 at 3pm. Don’t miss out! Sign up here.
In the meantime, watch James run through the factors that influence the wholesale price of power – what they are, how they work, and what to look for – in more detail.
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