Energy markets have seen increased volatility since Russia invaded Ukraine. Wholesale prices initially increased by 40% but have since pulled back a little bit however, prices remain high and very volatile. We have seen a significant drop in market liquidity, this has impacted energy trading and live prices are being inflated due to the size of the price swings and the speed at which they are moving. To put this into context energy markets (pre-pandemic) would move a few pence within the day but since the energy crisis, we have seen pricing move £20/MWh+ in a day. This volatility means that many energy suppliers are either not pricing or not able to hold open prices for long periods.
Russia is facing many sanctions but at the moment there have been no direct sanctions on the energy supplies coming from Russia into Europe and the gas and oil are still flowing to Europe. We have not yet seen a reduction of gas flows from Russia into the EU. Gazprom is continuing to supply the EU in line with its contracted commitments.
We have also seen Germany announce that Nord Stream 2 will now not happen and this would have doubled gas volume capacity into the European market. Germany has also announced that they are building 2 additional LNG terminals so they can reduce their dependency on Russian Natural gas longer term. A significant step as Russia currently supplies over half of the total volume needed by Germany.
Prior to the conflict the wholesale markets had started to pull back from the original spike which was caused mainly due to fears of gas shortages going into the winter period across the UK & EU and most of the fundamentals remain good, the UK has a good level of gas storage and we are continuing to receiving a good flow of gas from Norway. We have also seen an increase of LNG (liquefied natural gas) tankers coming in from Qatar and USA. The weather has been in line with seasonal expectations and we have seen renewable generation continue to support the power network.
It is expected that prices will continue to be driven by the news and not the normal market drivers for the foreseeable future and for the volatility in the markets to continue.
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