The upward tick in average power prices seen at the end of June continued throughout July, as a steady upward trend was maintained across the month. Prices increased by 46% month-on-month, with July’s outturn being €277/mwh, compared to €190 in June.
As the spot NBP price increased, the Day Ahead wholesale power market followed suit.
1. Gas prices continue to be very volatile
- July witnessed extreme volatility across gas markets. Erratic swings of 20% up or down, across the near and long curve, were seen frequently in July. Through that volatility, the NBP spot price remained on a bullish trend overall.
- Fuelling that push toward higher prices, is increased concern over the security of gas supply from Russia. Gas supplies have decreased by up to 80% on key routes since mid June. The recent rigmarole around the Nord Stream 1 pipeline, which feeds the EU with Russian gas, suggests that Russia may be willing to manipulate the supply of energy to suit their agenda.
- The European Commission seems to be considering the possibility that flows out of Russia could come to a standstill soon and have requested that member states help prepare for this by reducing gas usage by 15% from 1st August 2022 to 30th April 2023.
- Some good news across a number of fronts will likely be required before we see any sustained easing of prices in the gas markets.
- Europe continues to import record volumes of LNG in 2022, with June confirmed to be the first month where actual delivered LNG volumes have surpassed Russian gas flows over the course of a single month.
- However, the Freeport LNG terminal in Texas, a significant source LNG supply from the US to Europe, remains out of action and is projected to do so until Q4 2022.
- This, along with other supply chain issues, could be impacting the ability of some EU member states to meet increased gas storage requirements, of 85% by November, set out by the European Commission.
- There has been mixed levels of success in the drive for storage ahead of winter, with European countries such as France and the UK seemingly well on their way to exceeding targets.
2. Renewables mix disappointing
- Renewables, in the form of wind, contributed 21% of the generation Mix in July, compared with 11% in the same month in 2021.
3. Planned outages during summer months
- Outages are close to those experienced during the 2021 Capacity Crisis.
- However, the majority of outages in July were planned with the exception of Dublin Bay (415MW) & Tarbert (592MW), which are forecast to come back on line in early August and by March 2023 respectively, and a number of other shorter outages which were back online before the end of July.
- It is hoped that such a crisis will be averted later this year, with outages returning back below 2021 levels.
- Power Forward prices in the Irish market saw a large increase from June.
- The uncertainty over the security of Russian gas supply going into winter 2022/23, and general chaos in gas markets, has bumped up the risk premium, thus impacting the forward price of energy in Ireland and elsewhere.
- The reduced gas supply coupled with the breakout of war, European sanctions and markets fear of further sanctions against Russian energy exports has added to that increased risk premium in forward pricing.
12 month forecast
- Europe continues to import record volumes of LNG in 2022, with some nations, such as Germany, pushing through the development of new LNG terminals – Positive
- Geopolitical situation in Ukraine and potential for Russia to influence the gas market – Negative
- The situation around energy prices has become so serious now, that the EU Council has stated they are looking at price caps across all member states, like the Iberian exception. – Potential positive if implemented
- Moral and Political demand for sanctions on gas and oil – Negative
- Storage: Mild winter & spring weather had helped normalise European storage levels but supply chain issues and soaring hot summer temperatures have presented challenges to meeting winter storage requirements – Fluctuating
- Vulnerability of the already strained and highly sensitive global gas supply to any further negative influencing factors such as the Freeport LNG explosion and perceived manipulation of supply by Russia – Negative
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