Market Update:
The European and UK energy market has been working effectively throughout 2023, with the forecasts suggesting the current pricing may remain at this level for the next 3 years.
In the gas market we are seeing a differential wholesale cost for 1 year and 3-year terms below 3%.
The concern is that the market and supply is in a fragile state and any change or disruption will send prices up quickly.
Amidst the Red Sea escalation after the US and UK carried out airstrikes in Yemen, LNG rates have been impacted through the conflict.
The delay this week in dispatching the HMS Prince of Wales as a deterrent to these attacks is a concern, as a growing number of cargo ships, that would normally travel the Red Sea to deliver goods, are taking the much longer route around the Cape of Good Hope, adding up to around 14 days delivery time.
The number of ships crossing the Red Sea has dropped by more than 50% since the first part of December.
The concern is that the market and supply is in a fragile state and any impact will send prices up quickly. The key areas we are monitoring are:
1. Supply from USA and Norway, any disruption in these supplies, due to either logistics, growing demand elsewhere, or sabotage from Russia, puts an upward strain on gas prices.
2. European nuclear reliance on uranium from Russia, we have seen Russia stop exports of Gas at their own economic cost and if they continued this with uranium it would cause a significant shortfall in European electric generation which would likely be picked up by burning gas.
3. Wind and solar generation has been high across the UK and Europe year to date and it is impossible to forecast what this will look like in the latter half of the year. Two huge offshore windfarms have been scrapped due to growing upfront costs and the increase in borrowing costs to fund them as interest rates rise.
4. Temperatures for winter 23/24, we enjoyed an above average temperature this previous winter which, fortunately, relieved demand and cost.
5. The Israel/ Gaza/ Yemen conflict, the location of the conflict could lead to further disruption of the supply of LNG to Europe.
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