UK Energy Market Update
November 2024
Market Summary
November saw an escalation of geo-political tensions around Ukraine and Russia. Russia launched a large counteroffensive in Ukraine-occupied Kursk region, near where the critical Sudzha nomination point is located. This nomination point is Europe’s only entry point for gas transiting Ukraine, and if flows are affected this would have an impact on several European countries during heating season. The US, UK and France authorized Ukraine to use long-range missile systems, developed by these countries, to target deep within Russia, which Ukraine subsequently did. This was seen as a major escalation by the Kremlin and resulted in Russia updating their nuclear policy. There was also a large retaliatory strike from Russia on Ukraine, resulting in damage to Ukraine’s energy infrastructure and causing widespread blackouts that affected over a million people.
Slovakia's largest energy supplier, SPP, announced that it has signed a short-term deal with Azerbaijan's state-owned SOCAR to supply pipeline natural gas in December. This pilot agreement comes ahead of the Russia-Ukraine gas transit deal expiring on December 31st. While it's unclear if the deal will become permanent, it provides reassurance that contingency plans are being prepared for European gas hubs.
On November 13th, an arbitration ruling in favour of Austria's OMV regarding losses caused by irregular Russian pipeline gas supplies during the energy crisis. As a result, Gazprom Export has been ordered to pay €230 million in compensation to OMV. OMV saw it as a risk that this may not be paid and decided not to pay invoices for current flows of gas to recoup the award. This resulted in Gazprom cutting off supplies to OMV, although the volume of Russian gas flowing to Europe remains largely unchanged as new buyers or middlemen stepped in to snap up unsold gas.
The US Treasury Department has imposed sanctions on Gazprombank and 50 smaller Russian banks. These sanctions ban new energy-related transactions involving the US financial system and prohibit trade with Americans. Foreign banks working with the targeted institutions also risk facing sanctions. Gazprombank, partly owned by state-run Gazprom, handles payments for Russian natural gas from European customers. Currently, Russia supplies 6-8% of Europe's gas, but about half of this is expected to stop when the Ukrainian gas transit agreement ends in December.
A ceasefire brokered by the US and France has been reached between Israel and Hezbollah, and took effect on 27th November, ending 13 months of fighting. Under the agreement, Israel will withdraw its forces from southern Lebanon over the next 60 days, with the Lebanese army taking control of the area from Hezbollah.
The incoming Trump administration, set to take office in January, is preparing a new energy plan that aims to reverse Biden's LNG pause and fast-track the approval of export permits for new LNG projects shortly after taking office. Trump also plans to expand oil drilling along the US coast and on federal lands.
EU aggregated storage dropped over 8% over the last month to 87%, the largest withdrawal over this period in the last seven years. This was caused by colder temperatures across Europe.
Net Zero News
A recent report reveals a $789 billion (£625 billion) opportunity for small and medium-sized enterprises (SMEs) to tap into green finance. Developed by Sage in collaboration with the International Chamber of Commerce, the report shows that although 86% of SMEs value sustainability, only 9.1% actively provide formal reports on their environmental impact.
In his inaugural address to COP29, UK Prime Minister Sir Keir Starmer outlined an ambitious climate agenda, emphasizing his goal to re-establish the UK as a global leader in environmental action. He announced a bold new target: achieving an 81% reduction in UK emissions by 2035, using 1990 levels as the benchmark.
Research commissioned by tem. reveals that 37% of SME business leaders in the UK are uncertain whether their energy is sourced from fossil fuels or renewables, with many noting a lack of support from energy suppliers in transitioning to greener alternatives. The findings underscore significant concerns among businesses about the shift to green energy.
The World Meteorological Organization (WMO) reports that 2024 is poised to be the hottest year on record, with global average temperatures during the first nine months reaching 1.54°C above pre-industrial levels. This milestone highlights the accelerating trend of global warming, further amplified by the influence of an El Niño event.
Ofgem has announced new proposals to accelerate grid connections for wind, solar, and energy storage projects, supporting Britain’s goal of achieving its clean energy target by 2030. The plan prioritizes projects capable of going live within five years, ensuring a balanced and reliable energy mix nationwide.
In August 2024, fossil fuel electricity generation in the UK reached a record low, averaging under 5 GW. This achievement coincided with the closure of the Ratcliffe-on-Soar power station, completing the UK’s phase-out of coal power and making it the first major economy to do so. The latest Drax Electric Insights report highlights the UK’s leadership among G7 nations in decarbonisation. However, significant challenges persist, including phasing out natural gas, expanding grid infrastructure, and managing increasing system balancing costs.
A new report reveals that Britain’s current electricity market structure is insufficient to meet future energy demands. The report advocates for substantial reforms, including the introduction of zonal pricing to align electricity costs with regional supply and demand dynamics. Commissioned by Octopus Energy, the report also proposes transitional measures to safeguard investor confidence while lowering consumer energy bills.
Electricity and Gas Prices
November saw volatility remain in the market as prices rose through the month. The main drivers of the increases were colder weather, supply constraints, geo-political tensions, low wind generation and gas-for-power demand increases. EU aggregated gas storage is in a healthy position and geo-political tensions in the Middle East have cooled, supporting the market.
Flexible Purchasing
EPEX Price
Some of our flexible purchasing customers are buying on EPEX, a European auction for power. Because they auction every hour of each day, customers get the “market average” price as opposed to a fixed-term contract over e.g. a 12-month period. Being on this product means that you will pay the average of each day for the month and once the market falls the price will follow.
The EPEX price finished the month with an average of 9.71 p/kWh (commodity). With the non-commodity added to this, the overall rate will be around 20.61 p/kWh+.
Carbon Prices
European Union Allowance (EUA) prices averaged €67.51 per tonne in November, marking a 6% increase from the previous month. After two months of decline, prices rebounded, reaching a peak of €70.6 per tonne near the end of November. This upward trend was driven by energy market stabilization, improved market sentiment, the upcoming shipping emission regulations, and a recovery in European manufacturing. Despite an increase in market supply, strong demand quickly offset this impact.
Oil Market
5th - Oil prices climbed for the fifth consecutive session, with US crude reaching a two-week high as the dollar weakened. The OPEC+ alliance decided this week to delay a planned production increase by one month, pushing it to January instead of December. The increase will amount to 180,000 barrels per day.
10th - Oil prices initially fell after the election, driven by Donald Trump's support for fossil fuels and the potential for increased domestic production. However, with businesses prioritizing capital discipline and shareholder returns over growth, a second Trump presidency is unlikely to significantly boost U.S. oil production.
14th - Oil prices rose, rebounding from two-week lows due to active short-covering and early data indicating an unexpected decline in US crude inventories. Brent rose 1.7% to $73.10 per barrel.
18th - Brent Crude jumped nearly 3% following the shutdown of Norway's massive Johan Sverdrup oilfield caused by an onshore power outage, coupled with earlier gains driven by escalations in the Russia-Ukraine war.
27th - The Israeli cabinet officially approved the ceasefire agreement with Lebanon, which appears to have come into effect. Consequently, oil prices have fallen by around 2%.
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