UK Energy Market Update
September 2024
Market Summary
September saw a heavy schedule of seasonal maintenance of gas assets across the Norwegian Continental Shelf reduce gas flows into the UK and affected the market throughout the month. This included the two-week closure of the Norway-UK Langeled interconnector as well as at several major Norwegian gas processing plants, including Kollsnes and Nyhamna among others. High levels of UK gas storage and good levels of renewables helped to offset some of the reduced flows experienced during this period of planned maintenance. The maintenance schedule peaked on the 7th and remained at that level for a few days before gradually reducing throughout the rest of the month.
The intensifying conflict in the Middle East continued to affect the market throughout September. Hezbollah, a UK proscribed terrorist organisation, accused Israel's Mossad (National Intelligence Agency) of planting explosives in pager devices, resulting in the deaths of at least nine people and injuring nearly 3,000 others. The IDF (Israeli Defence Force) launched a multitude strikes at Hezbollah military targets across southern Lebanon, resulting in many deaths. UK Prime Minister Keir Starmer urged British citizens currently in Lebanon to leave the country immediately. One of the major risks involved in an extended conflict in the region is the closure of the Strait of Hormuz, which transits approximately one fifth of global LNG.
Russian gas flowing through the Sudzha pipeline via Ukraine are due to stop this winter as the agreement for this transit comes to an end on December 31st. Although the EU has no plans to renew the gas transit agreement between Ukraine and Gazprom, they remain keen to utilize Ukraine's gas and storage infrastructure to secure alternative supplies. Rumours did surface that Ukraine had agreed to facilitate the transportation of Azerbaijani gas to EU via the pipeline, but it has since been confirmed that no formal agreement has been reached on this proposal.
On the storage front, EU aggregated storage continues to tick upwards, ending the month above 94% full, putting the EU in a strong position as winter approaches. Cold snaps did force some drawdowns, but injections outweighed the withdrawals to produce a net gain in gas storage for September.
The 30th of September marked the end of coal power generation in the United Kingdom. Ratcliffe-on-Soar, the last remaining coal-fired station, permanently closed and will be transformed into a clean energy hub as part of the UK's long-term climate commitments, concluding 142 years of coal power use in the UK.
The UK Offshore Energies Association announced that the UK has achieved a major milestone under the North Sea Transition Deal, cutting upstream oil and gas emissions by 28% between 2018 and 2023. This surpasses the original target of a 25% reduction by 2027, reaching the goal four years ahead of schedule as part of the nation's net-zero commitments.
Net Zero News
On September 30th, Britain became the first G7 country to end coal-fired power production with the closure of its last plant, Uniper’s Ratcliffe-on-Soar in the Midlands. This marks the end of over 140 years of coal power in the country.
The goal of tripling global renewable energy capacity by 2030 and reducing fossil fuel use is achievable, according to a report by the International Energy Agency. However, it will require a significant effort to overcome obstacles like permitting delays and grid connection issues.
UK power supplier Octopus Energy announced plans to invest £2 billion ($2.7 billion) in British clean energy projects by 2030.
National Grid has announced an agreement with the UK government to sell its Electricity System Operator (ESO) for £630 million. This sale marks a significant step toward the creation of the independent National Energy System Operator (NESO).
The UK's first carbon capture pilot at an energy-from-waste facility has launched at Ferrybridge. Run by enfinium, the project will capture one tonne of carbon dioxide (CO2) daily and will operate for at least 12 months.
Europe added 6.4 GW of new wind energy capacity in the first half of 2024, including 5.3 GW onshore and 1.1 GW offshore. According to WindEurope's Autumn Wind Energy Data, the EU-27 contributed 5.7 GW of this total, with Germany leading at 1.7 GW, followed by France with 1.2 GW, and Spain with 876 MW.
Prime Minister Keir Starmer announced that Great British Energy (GB Energy), the state-owned public energy company, will be headquartered in Aberdeen, marking a significant development for Scotland.
In 2023, the UK had the highest electricity prices in the world at 25.46 pence per kWh, far surpassing the rates in many European countries. According to new government data, electricity costs 15.64 pence per kWh in Germany and 18.33 pence per kWh in Italy.
Electricity and Gas Prices
September was another very volatile month in the UK energy market. While prices ended the month at lower levels compared to last month, this doesn’t tell the full story as prices went up near the beginning of the month and only came back down below last months level near the end of the month. Some of the bullish factors affecting the market include geopolitical factors, supply disruptions from Norwegian maintenance, lower renewables and colder weather. Some of the bearish factors include healthy EU gas storage and strong fundamentals.
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 7.54 p/kWh (commodity). With the non-commodity added to this, the overall rate will be around 18.44 p/kWh+.
Carbon Prices
In September 2024, EU carbon prices averaged €65.51 per tonne of CO2, marking an 8% month-on-month and 21% year-on-year decline. Prices dropped to a five-month low of €62.82 per tonne. The completion of EU ETS compliance for 2023 at the end of September likely reduced demand for EU allowances (EUAs), adding to the downward pressure on carbon prices.
Oil Market
4th - After a decline of about 4% during yesterday's session, Brent crude oil remains on a downward trend. Currently trading at $73.44, it is approaching its December levels. As demand for oil continues to decrease, reports that China's manufacturing activity hit a six-month low in August have further contributed to bearish sentiment in the oil markets.
10th - Oil prices inched up slightly but remain close to their lowest levels in over two years, following OPEC's reduction of its global demand growth forecast for 2024 and 2025.
19th - Brent crude increased by more than 1%, following the Federal Reserve's decision to cut interest rates for the first time in over four years and amid escalating tensions in the Middle East.
25th - Oil prices rebounded as monetary stimulus measures from China and rising concerns over escalating conflict in the Middle East drove prices higher.
30th - Oil prices declined, resuming their downward trend after a brief pause on Friday. Prices remain under pressure due to reports that Saudi Arabia plans to increase production in December. Additionally, oil prices are facing challenges from a weak global demand outlook as China's economy falters and a potential supply glut emerges.
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