January Energy Market Report
In December 2021 the European gas storage dropped below it lowest level in any of the past 5 years. Historically the lowest point of storage on the European grid isn’t until towards the end of January. With the cold weather currently hitting the UK, gas demand is expected to soar. Unfortunately, this will push gas prices even higher to try to deter consumers from using for anything but essential use.
With the Nord Stream 2 problems not seeming to have a conclusion, and Russia playing hard ball with their volume of gas supplied into the European grid, the outlook for gas price reduction aren’t as positive as first thought. The long term gas market, which was low before the new year, has seen increases as suppliers are preparing themselves for a more long term increase in prices. Many experts are expecting to see record highs in gas prices during 2022, with wholesale prices already having seen up to 500% increases compared to previous levels.
Due to the decommission of the UK Rough storage facility in 2017, owned by Centrica, the UK only has storage of around 4 to 5 day winter peak demand gas. This means we are heavily reliant on the European Grid for the continuation of gas supply in the UK. Therefore the UK gas price is heavily influenced by changes in Europe. There are talks of the EU developing a strategic reserve to combat the gas crisis, but the UK are unlikely to be included in this due to Brexit.
In the UK approximately 40-45% of the electricity is produced from gas power stations. The huge surges in gas prices have had a long lasting knock on effect on the electricity prices. Unfortunately, the UK doesn’t produce enough energy from other sources to enable the reduction of the reliance on gas generated electricity. There are bids by Ofgem to generate investment in order to quadruple offshore wind capacity and double the interconnector capacity from European countries by 2030 (the UK currently pulls around 7% of its power from countries such as France, Belgium and Holland). The timescale of this isn’t going to help the market in the short term, but it hopefully gives the UK a more secure outlook to the generation and consistency of electricity and prices.
GMG are here to help clubs plan their procurement strategies to mitigate as much increase as possible, but also ensuring budget security. If you have any questions or concerns please contact [email protected] or James Heald on 0161-485-5410 opt 2