Energy Buying Support for Independent Hoteliers
Energy market rates remain painfully high. We strongly advise hotels to obtain professional support and guidance when managing this category over the coming year.
Recommendations
Prices have continued to surge higher still and further volatility is expected to continue in the longer term, and we are expecting underlying increases in pricing due to the gas storage situation along with the current supply side issues. As the winter approaches, the strength of the anticipated cold that comes with the season will have differing impacts on the price of energy.
For example, colder than average weather will entice stronger demand which will in turn cause prices to surge. Extreme cold will exasperate this upward trend further, whilst a “normal” winter with temperatures in line with the seasonal norm will allow for some losses in the market possibly, although this will be heavily reliant on a ramp up in supply via LNG which continues to look strongly unlikely. Therefore, we can continue to expect lots of risk premium to remain in contracts for the time being as it would be folly to rely on the UK weather to come in above average throughout the whole winter period; because of this urgency is encouraged with regards to new renewals as the longer the weak gas storage situation ensues (which could coincide with colder weather over the winter), the more we will continue to see prices rise in the future also.
Utility Trading Graphs
Electricity
Gas
Market Conditions / Price Drivers:
• Weather- Expectations of cooler weather for this week and falling renewable generation are expected to provide some upward pressure to prices this week.
• Russian Supply- news that Vladimir Putin directed Gazprom to inject volumes into storage sites in Germany and Austria from 8 November last week has so far pushed prices down tremendously so far, with winter contracts relinquishing strong value since the announcement.
• Nord Stream 2 – German Energy Ministry declared that Nord Stream 2 pipeline will not endanger security of EU gas supply. The pipeline will need approval from German regulator BNetzA but the green light from the ministry makes the regulators approval more likely. The Nord Stream 2 is ready with gas to export so as soon as regulatory approval comes it can begin exporting, a decision that the regulator has until 8 January to draft its decision.
• Storage – Storage still a large concern around 75% fullness. The recent mild spell has allowed greater injections into storage, although there have been some withdrawals on the colder days of last week. This is likely to retain premium to contracts throughout the winter months.
• LNG- News that Japanese gas inventories hit a 5 year high could result in an increase in LNG supply towards Europe as it is likely to remove some competition for cargoes. Asian prices for delivery this winter remain above European prices.
• Wider Energy Complex – Crude oil prices rise to their highest level since Oct-2018 as COVID recovery and power generator demand has lifted prices. An additional 450kbd could come as a result of power generators switching from coal and gas to fuel oil.
This information is provided by our HCC Market partners, Assured Energy, who are part of The Consultus International Group. Any information provided is given on an advisory basis and both HCC and Assured/Consultus are in no way liable for any action taken by the reader with regards to their energy purchasing.
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