WEEKLY ENERGY MARKET UPDATE - 30/01/2023

Last Week’s Pricing & Commentary  

The beginning of last week saw Freeport LNG terminal seek permission to start injecting natural gas into its cooling pipes, signalling the imminent return to operational capacity, this saw front month gas markets shed value aggressively due to the prospect of increased supply. Over the course of the week curve gas contracts came off by over 10% and UK power contracts followed this bearish trend too. Weather fundamentals remain important with temperatures over the course of week 5 rising to be above seasonal and wind generation improving from the daily low of 2.5GW seen last week, both of which are resulting in British gas demand falling by up to 11mcm a day towards the end last week. Europe remains well stocked with gas as storage levels in the mid to high 70% range. Last week saw National Grid take active measures to prevent the UK running short, with the DFS (Demand Flexibility Service) being notified and also three winter contingency coal units being told to warm up, but ultimately neither back stop was required. UKAs and EUAs both experienced very bullish weeks up 7.57% and 4.88% respectively, this resulted in both the British power and gas curves being supported during Friday’s session with a slight retracement of the overall bearish price action across the week. After a bullish start to last week Crude contracts closed on Friday after a significantly bearish day. The key motivator for this wasn’t demand dynamics but rather uncertainty surrounding the Fed’s next interest rate hike in the US, this will be announced on Wednesday with 25bps being priced in, if this expectation isn’t met expect crude markets to react aggressively.

Last Week’s Average Generation Stack

This Morning’s View

13 Laden LNG vessels are expected to arrive in the UK by the 16^th of Feb which ensures gas supplies remain healthy. European governments still haven’t finalised the price cap on Russian oil products, but this will likely be firmed up by the end of week 5. While on the topic of price caps, in response to the TTF front month price cap, ICE is looking to establish a parrel TTF market in London so as to prevent any interruptions/negative impacts that may occur in the EU seek to enforce the cap.

Wider news

UK PM Sunak: we can't put taxes up any more | Reuters

Oil falls as rate hikes loom, Russian flows stay strong | Reuters

Rare 'mother-of-pearl' cloud spotted in Scotland - BBC News

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