Energy Update – April/May 2023

Energy Buying Information for Hoteliers

Despite softening wholesale prices, Energy market rates remain painfully high. We strongly advise hotels to obtain professional support and guidance when managing this category.

Outlook & Recommendations

The effects of striking action across France’s nuclear fleet and LNG facilities acts as a reminder of Europe’s unprecedented situation with volatility still expected during 2023.

The root cause of 2022’s bull rallies and high volatility was uncertainty surrounding Europe’s energy supply mix. The significance of prices falling to pre-Russia-Ukraine conflict levels should not be ignored and the question should remain on how much markets could fall further still.

Contradicting price drivers have caused prices to plateau in recent weeks. However, ample storage levels and high inflows remain key fundamentals. With growing confidence that the worst-case winter scenario has been avoided and that a more manageable summer period is likely, we could find ourselves in a comfortable situation as we advance into next winter. However, prices will need to remain competitive to continue to attract the LNG volumes required to replenish gas stocks without the supply from Russia.

Europe’s energy security still faces a certain amount of risk in 2023. Winter-22 was partially successful due to government intervention but could mostly be attributed to milder weather conditions and low economic growth across Asia. Therefore, Europe’s supply/demand balance could become more challenging if uncontrollable drivers become less favourable during 2023.

Energy prices are currently levelling out as we enter the typical summer periods. However, volatility is still likely as prices for the best avoidance of risk, it would be recommended to secure a contract as soon as possible. To reduce the burden of the strength shown for contracts in the closer term, it is advised to contract further out to reduce pricing and spread the risk as longer-term contracts continue to represent better value.

Utility Trading Graphs

Market Conditions / Price Drivers:

French Strike Action - Strike action over pensions reforms has halted maintenance at nuclear reactors and LNG terminal send out since 7 March. Strikes at Dunkirk terminal initially stopped on Friday 24 March but did resume for a further day on the 28th. However, Strikes have been extended once again at Montoir, Fos Cavau and Fos Tonkin terminals with no signs of any change. Any cargoes that cannot berth in France as a result is being diverted to other hubs in Europe (mainly UK and Italy). The strikes have also forced EDF to delay reactor maintenance to repair cracks found on some reactors last month, causing concerns over longer term supply and lifting Q3/Q4 products.

Gas storage - Europe’s storage levels ended winter at a record high levels of just under 56% fullness, with European stocks seeing small net injections since mid-March. The record volumes came as a result of demand reduction efforts across Europe alongside the milder conditions seen for most of winter as focus now turns to refilling storage to meet the EUs mandated target of 90% fullness by 1st November. The healthy gas storage levels across Europe have played a vital role in the losses seen over the past few months, although LNG competition will be a key driver in achieving this target.

Temperatures – Cooler conditions across Europe at the beginning of last week gave support to spot prices with temperatures set to remain below seasonal norms for the duration of week 14, increasing gas-for-heating demand. Milder conditions for week 15 and stronger renewable output may limit near curve and spot price gains.

LNG – Europe continues to receive strong levels of LNG supply amidst weakening prices in Asian markets. It is still a key watch point moving forwards however, with the TTF premium over the EAX sitting extremely close. A change in global competitiveness could prove detrimental to Europe’s energy security. Concerns over the supply of LNG during 2023 is centred around China’s economic recovery, which could not only increase the gas price but also have a knock-on impact on coal. Continued strong supply is expected, with 14 set to arrive in the UK by 22nd April, although this is down from the 51 vessels seen this time last year. However, above-average send out is likely to continue throughout April.

Contract Expiry – Big contract expiry for Sum-23, Q2-23 and Apr-23 could have contributed to the upwards momentum seen towards the end of last week as customers had been waiting until the final days to lock in due to the recent bearish sentiment. Forwards focus has grown on the W-23 product in particular.

UK Support MEASUREs: The Energy Bill discount Scheme (EBDS)

The EBDS scheme was announced on January 9th and will provide support for UK businesses in the year commencing 1st April 2023.

Full details (including who will qualify for this support) can be found here:

https://www.gov.uk/guidance/energy-bills-discount-scheme

This information is provided by our HCC Market partners, Consultus 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.

If you need help with your energy tender, then take advantage of our Energy Tender Management Service. Full management of your tender and switchover for just £99 (incl. VAT).

https://www.hotelcostclinic.com/service-page/energy-tender-management-service

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