Eneco market reports mid May 2021
Both gas and electricity prices spiked to multi year highs during the first half of May, with supply issues causing heavy backwardation into far seasons (prices more expensive for delivery today, less expensive the further out you go). Continued colder temperatures and low wind have boosted demand, diminished renewable generation and increased gas usage for power generation. European carbon emissions prices have risen by 16% in May alone, prompted by the EU’s attempts to stop speculator trading. Supply outages have continued with further maintenance issues in Norway, low gas storage levels, and limited LNG imports as tankers are attracted to higher Asian prices. Oil prices continued to be buoyed by the successful vaccine rollout and the prospect of more international travel. Coal prices exceeded $80/tonne as supply outages combined with strong Chinese buying. Prices started to ease as we approached mid-month with the prospect of warmer temperatures in June, the first UK carbon emissions auction (UKETS), and expectations of higher Russian gas exports in June. However, any downside may be limited as Norwegian gas outages are now expected to be ramped up and continue into late June.
Supply outages –Norwegian gas production outages are likely to continue into late June. Russian gas exports are set to increase in June.
Oil markets – Oil has largely held onto recent increases and is currently trading at $65.5/barrel due to expectations of increased international travel.
Gas storage – European storage is at 37%, compared to 67% this time last year. Injections have started in Europe but not in the UK, where storage withdrawals continue.
Coal – Prices topped $80/tonne, with reduced supply and increased demand.
LNG – LNG deliveries are being diverted by strong buying and higher prices on Asian markets
Vaccine rollout – UK lockdown measures continue to be eased with the successful vaccine rollout, boosting demand and economic confidence.
Weather – Colder windless weather is likely to persist until the end of May and then warm into June.
Carbon costs – EUETS has started to fall from its all time highs as the UKETS kicked off on Monday 17th May.
Could go either way:
Sterling – has continued to strengthen against both the Dollar and Euro shielding the UK energy markets for some of the impact of oil, coal and carbon price increases. The continued rollout of the UK’s vaccination programme will influence its future direction.
On the electricity side organisations will see further increases in pass through costs from both government and industry infrastructure providers from 2022 onwards due to pandemic-related demand destruction. Levies normally collected via unit rates have fallen short of expectations and have fed through to further increases in ROs, FiTs, EII and other transportation, distribution and renewable investment charges. Targeted Charging Review will now take affect from April 1st 2022, one year later than expected, but are now being built into longer term contracts. Revised projections are available on our website via the links below.
Is your organisation covered by the new Streamlined Energy and Carbon Reporting (SECR) scheme from the Environment Agency?
Designed to replace in part the Carbon Reduction Commitment (CRC) which ended in 2019 and to follow on from the energy savings recommendations generated by ESOS compliance. Note, SECR will cover a wider scope of organisations than CRC and ESOS do. SECR requires all large enterprises to disclose within their annual financial filing obligations to Companies House, their greenhouse gas emissions, energy usage (from gas, electricity and transportation as a minimum), energy efficiency actions and progress against at least one intensity ratio.
If your organisation qualifies, participation in this scheme is mandatory. Eneco Consulting are happy to provide assistance with your regulatory obligations. Full details are available on our website on the link below.
Are you eligible for an EII rebate?
Under current rules, if you qualify at an industry sector level and your business passes the 20% electricity intensity test you may qualify for exemption to CFD and RO charges. Please see the attached Government RO/CFD guidance document and update and give Abby a call on the main number to discuss this further.
A copy of our environmental charges and Climate Change Levy rates from 2012 to date: Environmental Pass Through Charges and CCL with Definitions ppkWh 02.12.20
A copy of RO/CFD guidance document: RO_CFD_Guidance_Revised_July_2018
SECR: SECR EA Guidelines
TCR Charges (Targeted Charging Review): TCR Charges (Targeted Charging Review)