The Markets and Outlook: Where are we now?
Welcome to our latest ‘Markets and outlook’ blog where we’ll be taking a look at the energy market now following last year’s market spikes and volatility. We explore where storage levels are sitting without Russian flow and gain insight on energy security throughout 2023.
Have earlier predictions come true in relation to capacity, pricing and demand, or has the market seen some stability over the last few months? Charlie Ramsay, our Senior Customer Solutions Analyst here at TotalEnergies looks to answer these questions and shares his insight into the market and outlook as we head into the summer.
A heightened confidence
The wholesale gas and power markets in the UK have seen less volatility in comparison with last year. Yet, unique challenges remain, and we are still seeing prices and instability at levels higher than those prior to the Russian invasion of Ukraine. There are a number of issues which still persist in the market that featured in our last blog as market participants now focus strongly on the coming winters. Nevertheless, prices have largely come down throughout 2023, with risk premiums eroding and there has been widespread sense of heightened confidence in terms of supply and demand, compared with the position we found ourselves in at this time last year.
Although, this level of confidence has been tested this past week with extensions to key Norwegian infrastructure announced by Gassco (Norway’s gas transport operator), at a time where temperatures are high and air-cooling demand is being illustrated. These extensions will see capacity cuts being lengthened into the middle of July rather than June and will continue to take significant volume away from the market.
Sitting comfortably
Natural gas and electricity prices coming into last winter remained at very high levels, with significant risk priced in to ensure Europe attracts LNG and incentivizes demand cuts. However, as the winter months progressed, with mostly mild temperatures combined with demand destruction efforts and limited competition from Asia, the risk premiums began to peel away with time and prices fell. The continent managed to achieve a comfortable finish in terms of natural gas storage, amounting to above 50%, gifting the summer filling season a welcome head start. UK aggregated Medium Range Storage levels are low, with slower injection rates, however with the addition of Rough volume the levels look fairly healthy.
UK aggregated storage levels aren’t as sizeable in comparison to countries in Europe, however with the addition of Rough storage facility at the tail end of 2022, total stock levels are sitting at around 48%. Rough came back online at the end of 2022 after it was shut down due to costly maintenance and lack of profitability. The facility was needed for additional storage requirements in the wake of the energy crisis, where various measures have been taken to wean away from Russian gas. The site can be utilised at 20% currently which has boosted total capacity significantly in the UK, but still much lower than the likes of Germany and The Netherlands.
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