State Of The Energy Market – November 2022
As we move closer towards the festive season and new year, energy prices have started to soar as demand quickly picks up, the harsh winter weather being one of the key reasons for the increase. Temperatures in the UK had been above the seasonal averages for October and November but they are now set to dip one degree lower than the average for December.
Demand peaks in winter combined with the energy supply that is generated daily can not support the national grid alone.. Surplus energy has to be used – amounts that were previously collected and stored throughout the year. With UK demand picking up, this has led to withdrawal from storage across Europe and the frequency of UK capacity warnings increasing. As supplies tighten, leading industry experts have said the risk of power blackouts across the country has been heightened.
Amidst the ongoing conflict and struggles between Russia and Ukraine, it has been Russia who are threatening to restrict gas flows to the only pipeline still connected to western Europe. Despite this being a fraction of the energy supply, the threat has unsettled the energy markets as the colder temperatures begin to kick in for the start of winter.
Gas, Crude and Power
Prices have increased exponentially due the predicted forecasted temperatures and greater demand, being a key factor. The pipeline running through the Sudzha entry point in Ukraine has also raised eyebrows in Western Europe and has been a major talking point amongst many countries including the UK. For the business energy market, gas and power contracts will be higher in the month ahead than those starting now. A season in the business energy market is measured as a 6-month spread, typically from April to September (for the Summer period) and October to March (for the Winter period).
Brent crude prices have decreased and are trading at levels seen during the beginning of the year. This is mostly due to the recent COVID-19 measures that have been announced in China with them recording their highest number of daily cases since the pandemic began. Prices are 9% higher than at the start of 2022 however they have also dropped lower by 33% than when prices peaked in March.
Europe’s Energy Crisis
Fresh warnings from leading Energy Industry analysts point to the current energy crisis across Europe persisting for years to come, if demand can’t be reduced and new supplies secured. Due to the mild temperatures that occurred in Autumn, Europe has been able to fill up storage levels and provide more energy security for it’s population heading into the colder winter months. Analysts are concerned about whether supplies can last long enough and also if they can be refilled for following summer and winter.
The head of liquefied gas for Asia at Vitol, Mr Sid Bambawale has mentioned that there is a “gas crisis” and that “we will continue to be in a little bit of a crisis mode for the next two or three years”.
European policymakers are presented with an uncomfortable reality. Hundreds of billions of euros have already been spent ensuring the storage silos have been filled for the winter ahead in order to provide much needed support for households and businesses. The strain on public funds, as well as pain for households and businesses are likely to continue next year.
Gas flows have come to a near standstill in response to western sanctions imposed for Vladimir Putin’s war in Ukraine, brining about fresh concern. A new threat has emerged from Moscow limiting output from the only remaining pipeline that connects Russia and Europe. This highlights the importance of locking in supplies from other global producers of energy and taking drastic action to reduce fuel consumption by industry and householders.
High storage levels could lead to complacency and a slowdown of demand reduction, according to energy experts. There will be a bigger gap to fill in the market and it is noted that China will begin to consume more gas than last year. The zero COVID-19 policy that is in place could gradually be eased – a contributing factor to this situation.
The chief executive of Vitol, Mr Russell Hardy has mentioned that gas prices would have to stay sufficiently high in order to suppress the demand for the fuel over the summer period from industrial users in order to refill storage and keep the lights on. “High prices will have to compress demand largely every month of next summer. It’s not a good thing – it is an absolutely awful thing for European businesses and that’s the genesis of the recession.
How Are UK Businesses And Households Affected?
It has recently been announced by Chancellor Jeremey Hunt that UK households and businesses are to pay much more for their energy next year as the government cuts subsidies designed to mitigate soaring costs of gas and electricity. In the autumn statement, aimed at shoring up the national finances, the chancellor said the majority of businesses would not receive extra support beyond April, arguing that subsidising their costs was “not sustainable”.
The typical household will from April 2023 pay up to three times as much as last year but businesses could be hit by even larger rises once the subsidies have been removed. The government reiterated that while support for households will continue until April 2024, it was not sustainable to continue supporting businesses beyond next spring.
Ministers are looking into withdrawing support for most corporate energy consumers from the 31st March 2023 after which the government will only target support for more vulnerable households and industries. Those that are highly exposed to energy prices and are unable to absorb costs sufficiently may continue to require support beyond March 2023 but the overall scale of the support the government can offer will be significantly lower and targeted at the most affected to ensure fiscal sustainability and value for money for the taxpayer.
Do you have concerns about the current energy crisis that you wish to talk about, or is your business looking to find a new supplier? At AdaptiveComms, our friendly team can provide you with the support and help you need to get a plan in place for managing your businesses energy consumption. We can assist you in finding the best deals currently on the market and help you save the pounds this season. You can find out more detail here or you can call 01704 540 547