The business energy market can be challenging to understand.
Every month, our specialists create a Market Drivers report to keep your business updated.
We have highlighted Bearish drivers, expected to contribute to the market lowering, and Bullish drivers, expected to contribute to the market going higher.
Bearish Drivers
– North West Europe storages are forecast to end January at 415TWh (75%), a record high level for the time of the year. This poses a bearish risk for a strongly oversupplied situation in SUM24.
– Demand destruction across UK domestic market and Industrial sectors continues.
– Norwegian exports in December on the way to hit historical high with strong production likely to continue in January.
– LNG arrivals to North West Europe are expected to increase further January
Bullish Drivers
– Halt of the fuel shipment via the Red Sea by several companies including BP as Houthi attacks intensified.
– Potential for weather forecasts to be revised lower than current forecasts leading to stronger than envisaged heating demand.
– Industrial gas consumption saw an increase in December year on year reflecting on slightly improved manufacturing situation and fall in the prices incentivising the demand.
– Risk of unplanned outages on NCS and UKCS.
December was a relatively stable month for gas prices with the NBP trading notably lower at the end of the month and over 30% lower compared to November. This was amid strong storage levels in the UK and Europe which were able to contribute with stable withdrawals when needed in the recent cold snap. On the supply side both LNG and Norwegian flows remained strong, geopolitical risk has also ebbed with the market focus switching to bearish fundamentals.
These bearish fundamentals have kept European prices under steady pressure through December. The cold spell at the beginning of the month did not seem to have made the markets worry as we are moving closer to the end of winter. The bearish price trend has been shortly interrupted only by LNG-related events: the announcement of the delay of the Golden Pass LNG project in the US and the recent halt of the fuel shipment via the Red Sea by several companies including BP as Houthi attacks intensified.
Looking ahead, the expectation for the rest of January remain bearish. The latest weather forecasts suggests slightly above normal temperatures in January, though not as mild as last year.
Higher LNG arrivals into Europe should be boosted by supply from the Russian Yamal LNG following the closure of the norther sea route and the resort of exports from Egypt. The main LNG supplier to Europe sailing through the red sea is Qatar, it provides only around 5% of North West Europe LNG imports.
Forecasts suggest that January should end the month with aggregated NWE storage stocks at 415TWh (75%), remaining a record high for the time of the year. Assuming weather conditions in February and March are close to normal, the expectation is that NEW storages are at 56% full by the end of winter 23. This is a record-high level illustrating a notably bearish picture with storages at risk of being full by the middle of the summer season. Speculation suggests that even if we see an extremely cold Feb/Mar as
observed in 2018, we may still see storage ending March at 36% (slightly above the 5-year average), and should not pose any substantial risk for refilling storages ahead of winter 24.