Overview of the UK Gas and Electricity market

Here is a brief overview of how the UK Gas and Electricity market is looking;

 

The team at Telecom Solutions provide an update on the UK Gas and Electricity market whenever major changes occur.

 

UK gas prices closed at some of their highest levels since 2008 last week, with prices 131% higher than this time last year. We usually see a period of storage injections, but with the colder temperatures this year increasing the demand for gas there is little left in reserve.

 

Prices have been pushed higher further by the unplanned outages and continued concerns over the UK storage levels. Fewer supplies are expected into Europe, with LNG (Liquified Natural Gas) heading out east where they are willing to pay more. Low renewable output has also helped support the 1% gains of crude prices, all contributing to the increase in prices.

 

 Other reasons why prices are set to increase include;

  •  Expectations of extremely tight gas and electricity supplies across Europe – planned maintenance, unplanned outages, and no LNG (Liquified Natural Gas) coming into Europe.
  • Continued concerns around UK storage levels.
  • Global energy demand is expected to increase.
  • Low renewable generation, putting more demand on energy produced from fossil fuels.
  • A reported increase of the new Delta variant of coronavirus has sparked fears of a global slowdown of lockdown measures.

 

Gas and Electricity Prices Will Further Increase ….

Both gas and electricity contract prices have increased even further, following the expectations of low supplies across Europe, as planned maintenance and unplanned outages reduce supplies, with further upside dealt from the strengthening coal and carbon markets.

 

Here’s why …….

  • Gas contracts have gained further value as the Asian premium continues to attract LNG shipments away from Europe and the UK.
  • The UK electric price monthly average is also the highest it has been in the last 5 years, as shown in the graph below, with wholesale oil prices still trading high and the expectations of a demand recovery remaining positive.           
  • The Delayed Re-opening due to Covid- 19 restrictions within the UK has impacted the price of Gas and Electricity Charges
  • Looking at the current market, 12 and 24-month term contracts have opened increasingly high since last week, especially for gas contracts.

 

As mentioned before, there has been a lot of concern around the UK supply levels and issues in building the inventory, especially for use in the winter months.

 

The temperatures this year were below seasonal norms, meaning more gas supplies were withdrawn from storage to keep up with the increased demand. Planned maintenance at the Nord Stream 1 and Yamal pipeline and unplanned Norwegian outages have resulted in low gas supplies. No Liquified Natural Gas (LNG) is coming into Europe either, as premiums have increased and the East are willing to pay more for the gas.

 

Currently. UK gas storage is at 15% capacity, providing a lot of risk for this winter. With pipelines being offline for longer than expected, in the last 2 weeks, we have also taken 15% of gas out of the already low storage levels.

 

Why have gas prices increased even further this week?

  • Carbon prices have recently broken the 10th “new record high” in 2021 alone.
  • This puts pressure on gas prices as gas is less expensive and “cleaner” than coal and because of the extremely high prices, gas demand is greater than other fuels to generate power due to fuel switching.
  • There is a limit on the flow from the Russian pipelines so additional resources can be taken.
  • The Yamal and Nord Stream pipelines will be offline 6th-10th July and 13th-24th July respectively due to maintenance. This will significantly reduce Russian flows into Europe.
  • Storage is therefore unlikely to be balanced with the reality that no extra volume will arrive in Europe due to the Sudzha auction.
  • Gas is currently flowing at 320mcm a day to Europe (twice the amount for total UK demand). When the Yamal pipeline goes offline, this volume will fall to 264mcm and to 160mcm when Nord Stream is offline.

 

In conclusion, with already low supplies and more outages, the gas market is likely to be short for the winter months.

 

Contract prices are high now as suppliers plan how much energy they will need and forward buy.

 

If you are looking at renewing your contract later this year, we would advise comparing prices now to see your options and secure today’s rates before they increase even further.

 

For more updates on the UK gas and electricity market, be sure to keep your eye out on Telecom Solution’s blog page.

 

Get in touch with us to see if we can save you money on your energy bills call our sales team on 01925 599201 or email sales@telecomsolutionsltd.co.uk. Alternatively, check out our business energy solutions page for more information.

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