UK Energy Market Update
October 2024
Market Summary
October saw the continuation of the annual maintenance schedule of gas assets across the Norwegian Continental Shelf, although it had less of an impact on the market than during the peak experienced in September. There were compressor failures at Troll, Asgard, Gullfaks and Oseberg, while Kristin and Kårstø experienced extended periods of planned maintenance. The Sleipner B platform at the Sleipner gas field was shut down following a suspected electrical fire and the facility lost power as a result.
The escalating conflict in the Middle East continues to affect the market as October saw several noteworthy incidents and escalations. Israel launched a ground invasion into southern Lebanon, which the Israeli Defence Force claimed was ‘limited, localised and targeted ground raids’. In response, Iran fired around 200 missiles into Israel, causing the brief shutdown of Israel’s Tamar and Leviathan gas fields, which were undamaged from the strikes. The leader of Hezbollah, Hassan Nasrallah, and the leader of Hamas, Yahya Sinwar, were both killed by Israeli forces in separate incidents, as were several top commanders. There was also an assassination attempt on Israeli Prime Minister Benjamin Netanyahu, when a drone strike his hit private residence, but no one was injured in the incident.
Although it was suspected that Ukraine would not extend its gas transit deal with Russia beyond it’s 31st December 2024 end date, this has now been confirmed by Ukraine’s Prime Minister, Denys Shmyhal. He expressed his strategic objective of depriving Russia of profits from its oil and gas operations, limiting their opportunity for financing its war with Ukraine. According to the EU Energy Commissioner, Kadri Simson, Europe is well-prepared to handle the expiration of the gas transit agreement between Russia and Ukraine. Under the current arrangement, around 14 billion cubic meters of Russian gas are transported via the Sudzha pipeline.
Hurricane Milton made landfall on October 9th in Florida; it began as a Category 5 hurricane but was downgraded to Category 3 before it made landfall. Although there are no LNG facilities in Florida, there were concerns about the Elba Island LNG facility on the Georgia-Florida border, but no damage was sustained. At its peak, Hurricane Milton was the fifth-most intense Atlantic hurricane on record, causing widespread damage across the region.
On the storage front, EU aggregated gas storage ended the month around 96% full, which is around 3 percentage points below the same date last year but still above the average for this date over the prior 5 years (92.47%), helping boost confidence ahead of winter.
Proposed UK power market reforms, which include regional electricity pricing, are facing backlash from groups like UK Steel, Make UK, and RenewableUK. They argue that splitting the market could raise costs for energy-intensive industries such as steel, glass, and ceramics, risking job losses and discouraging investment. Supporters say regional pricing could boost efficiency and encourage industries to move to areas rich in renewable energy. However, critics warn it could unfairly impact businesses unable to relocate and hinder renewable developers. As the Labour government aims for a net-zero energy grid by 2030, market uncertainty could deter much-needed investment.
Net Zero News
Encyclis has completed the UK’s first energy-from-waste plant to use hydrogenated vegetable oil (HVO) instead of diesel for its start-up process. This achievement took place at the Newhurst Energy Recovery Facility in Leicestershire after a year of research and development focused on cutting fossil fuel emissions in the waste-to-energy sector.
The renewable energy sector saw remarkable growth in 2023, with jobs increasing from 13.7 million in 2022 to 16.2 million. This data comes from the Renewable Energy and Jobs – Annual Review 2024, published by the International Renewable Energy Agency (IRENA) and the International Labour Organization.
The UK Government has pledged £22 billion to support carbon capture and storage (CCUS) projects in Teesside and Merseyside, aiming to draw an additional £8 billion in private investment. CCUS technology captures carbon dioxide emissions from industries such as steel and cement, stopping them from being released into the atmosphere.
Plans to split Britain’s electricity market into regional price zones have raised concerns among major industry groups.
Ofgem and Innovate UK have announced £9.7 million in funding through the Strategic Innovation Fund (SIF) to support 21 selected projects. These projects aim to tackle key challenges in network planning, renewable energy integration, demand management, and long-term energy storage.
Renewables are projected to supply nearly half of the world's electricity by 2030, according to a new report from the International Energy Agency (IEA). The report estimates an increase of over 5,500 gigawatts (GW) in renewable energy capacity between 2024 and 2030.
Geopolitical tensions are highlighting major weaknesses in the global energy system. The International Energy Agency’s (IEA) World Energy Outlook 2024 report stresses the urgent need for stronger policies and greater investment to accelerate the shift to cleaner and more secure energy sources.
The UK is preparing to unveil a long-term energy strategy to drive the transition from fossil fuels to clean energy, with 2050 as a critical target. The strategy, to be developed by the newly established National Energy System Operator (NESO), aims to provide a clearer roadmap for future energy projects and greater stability for investors.
Electricity and Gas Prices
October was another volatile month in the energy markets, although volatility was less than in September. Gas and power prices generally increased despite some occasional dips. The main drivers affecting the market were geopolitical factors, including the US elections, the UK Autumn Budget, and developments in conflicts in Ukraine and the Middle East. Combined with supply restrictions and low demand, these factors drove prices higher.
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 8.36 p/kWh (commodity). With the non-commodity added to this, the overall rate will be around 19.26 p/kWh+.
Carbon Prices
EU carbon prices averaged €63.21 per tonne in October, a 3.37% decrease from the previous month. Price fluctuations were mainly influenced by energy market volatility, changes in manufacturing demand, and allowance availability. The market remains oversupplied, with the reduction in allowance supply progressing more slowly than expected. With winter approaching, weather conditions impacting renewable energy production and natural gas demand are likely to drive prices higher.
Oil Market
5th - Concerns over oil supplies, combined with comments from US President Biden, drove a 5% rise in price.
7th - The Brent Crude benchmark closed at $80.93 per barrel, marking its highest settlement since July 18, as the ongoing Israel-Hamas conflict entered its second year.
15th - Oil prices dropped 3% overnight after Benjamin Netanyahu assured the US that Israel would target only Iranian military assets, avoiding oil and nuclear facilities.
16th - OPEC lowered its global oil demand forecast due to weaker-than-expected economic data from China. According to ICE data, the Brent Crude benchmark contract recorded a 4.1% day-on-day decline.
23rd - ICE data shows the Brent Crude Dec-24 contract jumped 2.4% day-on-day, signalling a potential rebound.
28th - Europe’s primary oil benchmark dropped significantly as energy markets reacted with relief to news that Israel’s retaliatory strikes on Iran avoided oil and gas infrastructure. ICE data shows the Brent Crude benchmark fell 6.1%.
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