State of the Energy Market – 5th July 2022

Daily Updates

The wholesale energy markets opened with further increases this morning (5th July), which continued to ramp up into the early afternoon. At one stage, Winter 22 gas topped 430 pence per therm and electricity was also up and heading towards £400 per MWh.

However, as we approached market closing times, we saw sellers become active and led to most of the gains we saw throughout the day drop away. We now expect to see closing prices at similar levels to yesterday’s close, making today a neutral price movement day.

Last minute negotiations did not result in calling off the proposed industrial action on the
Norwegian energy sector and so the strike will be going ahead. In fact, it has already started
but the area impacting gas flows into Europe commenced at 11pm on 5th July and gas flows
to Europe are expected to drop by up to 13% from 6th July

Gas

August 22 wholesale gas prices gas prices increased by 17.1% to close at 282.84 p per therm.

Power

August 22 wholesale power prices increased by 12.9% to close at £262.55 per MWh

In other energy related news:

  •  The German government is launching an aid package for energy intensive users that will enable German customers to claim up to 50 million Euros to help cope with damaging wholesale energy prices. The application scheme is open until the end of August and the total amount earmarked for this is an eyewatering 100 billion euros. It will be interesting to see if the UK government will aim to follow the German approach.
  • Reports coming out of Russia suggest that Gazprom has taken over the enormous Sakhalin 2 LNG project. Gazprom were already the majority stakeholder but had previously been in partnership with Shell, Mitsubishi and Mitsui. The reported new arrangement cuts the former minority shareholders out of the picture leaving Gazprom in complete control. Shell had been looking to exit the project through selling out their shares and so it looks like they have their wish but without the payoff they were hoping for. This will be relevant to European markets because Gazprom have stated that any future LNG cargoes from Sakhalin 2 will need to be paid for in roubles, which will no doubt lead to a reduction in LNG volumes reaching Europe.
  • Netherlands is the latest country to join the growing number of European countries warning large energy consumers that they are likely to be asked to reduce their energy consumption at the start of next year. This will help Holland to cope with energy shortages, following the reduction in Russian gas imports, and will assist with the government’s aim to reduce CO2 emissions. The Dutch government will provide a series of aid measures to force customers to invest in all possible energy saving measures on the basis that the customer’s investment can be recouped within a 5-year period.

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