Energy Market Update - 02 October 2024
Escalating tensions in the Middle East have continued to push up both UK and European natural gas prices, with other commodities such as oil also seeing significant gains. Israeli forces' movements into Lebanon and Iranian missile attacks on Israel have heightened concerns, with geopolitical instability driving much of the market direction.
Norwegian gas flows held steady at 286 mcm/day, with 58.5 mcm/day of that volume sent to the UK. Russian gas deliveries via the Velke Kapusany pipeline remained stable, while EU gas storage levels are strong at 94.37%, as reported by AGSI. However, the UK gas system opened 6 mcm/day short this morning, with reduced flows from Norway due to maintenance at the Vesterled pipeline and additional disruptions at the Troll and Asgard fields, which together have curbed output by nearly 18 mcm/day. LNG send-out remains steady at 32 mcm/day, primarily from South Hook, with three LNG cargoes expected to arrive in the UK over the coming weeks.
The NBP Day-Ahead contract increased to 94.50p/therm today, driven by reduced Norwegian supply and growing geopolitical uncertainty. UK power prices also saw an upward shift, with the Day-Ahead Base contract reaching £82.37/MWh, supported by an expected decline in wind power generation starting tomorrow. Gas-for-power demand is forecast to rise as wind speeds fall below seasonal norms. The latest weather forecasts suggest colder-than-average temperatures through the weekend, followed by a rise into the middle of next week, further influencing short-term demand.
Brent oil prices surged to $73.56/bbl as the conflict in the Middle East threatens to impact global supply. Carbon prices, represented by EUA Dec 24, eased slightly to €63.61/tonne, reflecting cautious optimism on future emissions reductions. Additionally, coal prices were reported at $123.27/tonne, reflecting ongoing demand despite wider market moves towards cleaner energy. Currency markets also saw movement, with the GBP/EUR exchange rate at 1.2020, maintaining some stability despite broader market fluctuations.
Despite strong gas fundamentals, including healthy storage levels across Europe and stable Russian flows, the energy market remains highly volatile. Rising geopolitical tensions, particularly in the Middle East, continue to introduce uncertainty. This volatility, coupled with ongoing supply constraints and fluctuating renewable generation, suggests that price pressures may persist in the short term, with markets reacting to a complex and evolving global landscape.