Over the past few months European energy prices have risen to unprecedented levels, with gas and power supply concerns continually adding risk premium to the market.
As we come into this winter, a tight gas market was the initial cause for concern, but there’s other factors that have sent prices flying recently.
Firstly, we’ve seen high EU gas storage withdrawals over the last few months after a difficult summer where EU storage struggled to replenish. There are growing concerns that storage levels could be left depleted before the end of winter with levels down to around 60%, compared to roughly 80% this time last year.
Alongside this, expectations that Russia would start refilling Gazprom controlled storage sites in Europe from November was quickly priced out the market as continued low flows led to storage withdrawals. We’ve even seen reverse flows through the Mallnow pipeline at times.
There was another setback on the $12 billion Nord Stream 2 project with the regulator announcing that it had temporarily suspended the certification process for the pipeline. It was determined that the Swiss-based operator must first form a legal entity in Germany. A decision on certification is not expected until at least the second half of 2022.
Added risk to power supply margins over the coming months comes with recent French nuclear outages, sparking a fresh surge in European power prices.
Crucial to driving the market going forward will be weather forecasts over key gas demand hubs, but we expect volatility to remain. Supply fundamentals will also be important to monitor over the coming weeks with Russian gas flows, French nuclear availability and EU gas storage levels particularly vital.
With so much more going on across the energy complex I’m sure you are wondering how you can stay on top of the wholesale energy price as it changes, especially in uncertain times like these?
Energy is a complex business, but hopefully we can make it simpler. You can keep informed on the changing prices through us at EDF. Join our free bi-monthly webinars on the UK Power Market with James Chaplin, Power & Gas Trader in the Portfolio Hedging team.
The next one is coming soon, on 12 January 2022 at 3pm. Don’t miss out! Sign up here.
In the meantime, watch James run through the factors that influence the wholesale price of power – what they are, how they work, and what to look for – in more detail.