2022 has positioned itself firmly as one of the most memorable for the energy sector in recent years. We have witnessed seismic changes in the wholesale cost of energy, transformational proposals for market reform and two new Prime Ministers. In our last Energy Market Bulletin report of 2022, we have comprised some headline summaries for GB gas, power and international commodities looking back at price levels and associated market fundamentals. If you would like to learn more about our regular coverage of the GB wholesale market, please reach out to: s.peek@cornwall-insight.com and/or t.ross@cornwall-insight.com
Power pricing and headlines
- On 24 February, Russia declared war on the Ukraine, and a tragic humanitarian crisis ensued. We saw significant spikes in day-ahead power prices as well as contracts further out on the forward curve, with the invasion generating significant bullish sentiment oDay ahead power climbed £71.5/MWh to £235.0/MWh from the day previous. Seasonal power contracts rose £54/MWh on average, to ~£245/MWh following gas counterparts higher
- Back in September 2021, a significant fire at the IFA1 interconnector convertor station saw 1GW of the 2GW capacity interconnector go offline. Fast forward to present day, and the full return of IFA1 continues to be pushed back. Full return of the interconnector is now not expected until 18 January 2023. However, 500MW of the 1GW that remains offline is still expected to return from 22 December
- Sizewell C was given the green-light to continue in Jeremy Hunt’s autumn statement. It is also now confirmed from BEIS secretary, Grant Schapps back in late November that the Chinese investment partners in the project have since been bought out. Although not confirmed, the stake was reported to be in the region of ~£700mn
- Around 50% of the French nuclear fleet has been offline for a significant period of 2022, dated back to February. In November, EDF lowered 2022 nuclear output expectations to 275-285TWh, compared to previous forecast of 280 300TWh as a result. The shortfall of nuclear generation in France raised its domestic power prices significantly – and around ~14% higher than the UK domestic power price on average in £MW/h terms. As a result, the UK has been a net exporter of power for ~nine months of 2022
- At the request of BEIS, the ESO agreed contracts with Drax, EDF and Uniper to extend the life of coal fired power plants this winter, as announced back in August. Total capacity of ~2,500MW will be available from the following coal units: (2x400MW units at West Burton A, 2x570MW units at Drax and 1x480MW unit at Ratcliffe*. These units will be available from 1 October 2022 until 31 March 2023, with costs recovered through BSUoS
Gas pricing and headlines
- On 24 February, Russia declared war on the Ukraine, and a tragic humanitarian crisis ensued. Day-ahead gas rose 83p/th higher than the day previous to 280p/th and was the catalyst event for much of the significant rises in gas prices seen across 2022 oOn going uncertainty surrounding the future of Russian gas supply continued to dominate much of the sentiment for gas prices in the year. This was exacerbated by various maintenance phases across the Nord Stream 1 pipeline, which ultimately led to a complete halt of flows from Russia via the pipeline in the late part of September
- Mandated gas storage thresholds introduced by the EU on its member states, as introduced on 19 May, saw the rapid acceleration of gas storage refilling. The catalyst for this refilling was centred around ensuring security of supply amid the significant reduction in Russian natural gas expected for winter 22 and beyond oThe EU reached its mandated threshold target ahead of schedule, with overall volumes sitting at ~80% full from 31 August, ~2 months earlier than the 1 November target date (the UK was not mandated by this policy)
- GB gas storage levels were close to 100% full in October too, helped by the return of storage capacity at Centrica Rough, which had been running at ~20% of its total capacity. This is expected to increase the UK’s gas storage capacity by ~50% this winter
- GB become a net exporter of gas (as well as power) for much of 2022. From May this year, we saw a switch between the UK being a net importer of gas historically, to a net exporter. A trend that has remained consistent up to the end of this year oThe UK has been receiving significant levels of LNG, which is then processed, regasified and then able to be passed through the UK National Transmission System (NTS) and sent out via our gas interconnectors such as the IUK (Belgium) and Balgzand to Bacton Line (Netherlands). The result of this strong influx of LNG reaching the UK is that a significant volume of gas is being piped back out to the continent, resulting in the significant rise in gas export volumes from ~May 2022
Commodity pricing and headlines
Trends
- Volatility remained consistent in the year
- Highest price point in 2022 for both market was on 19 August (€97.57/t for EU ETS and £97.00/t for UK ETS)
- Recent price rises can be attributed to colder weather, encouraging higher demand for in the UK and Europe for gas and fossil fuel fired assets
Trends
- Like other commodities, brent crude prices have seen a level of volatility throughout the year
- OPEC introduced 2bn/bpd production cuts on 1 November
- Future economic uncertainty fueling bearish market price movements in recent months
- Embargoes on Russian oil continue to provide support
Trends
- Profile of prices volatile in the year
- Hit all-time high on our records of ~553p/h on 26 August, exacerbated by the Nord Stream 1 outages, placing higher reliance on LNG from the European gas market to manage the supply shortfall
- LNG prices to remain high on elevated global demand
To learn more about our regular coverage of the GB wholesale market, please reach out to: s.peek@cornwall-insight.com and/or t.ross@cornwall-insight.com
