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.