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
Bearish sentiment across energy markets have allowed for prices to drop significantly over the past few weeks. Milder temperatures, high wind forecasts and strong supply-side fundamentals caused risk premium to diminish at the beginning of 2023. Strong storage levels for this time of year provides confidence to the market, as there is less panic over supply for this summer and the following winter. If Europe remains in a comfortable positions throughout the peak winter months, we could see further losses heading into 2023.
There are ongoing concerns that a total cut-off of Russian flows and limited LNG availability in 2023 could leave Europe with a significant supply-demand gap. In 2022, Europe succeeded in increasing LNG due to lower import demand across Asia. China’s lower than expected economic growth and Covid lockdowns caused manufacturing hubs like Guangzhou to halt manufacturing, making the continent less competitive in drawing LNG supply away from Europe. A recovery to the Chinese market could cause issues for Europe in 2023. At the same time, Russia cut deliveries sharply in 2022 but still delivered 60bcm by pipeline to Europe over the year with 30bcm directed to storage sites in preparation for this winter. The loss in supply could cause Europe issues when faced with filling storage levels to their required amount before Winter 2023.
To tackle these problems the IEA have suggested 5 areas for Europe to overcome the gap.
Improve efficiency
Increase renewable output
Implement behaviour changes
Scale-up supply
Electrify heat.
However, most of these initiatives are long-term projects and may not cover the supply-demand gap Europe now faces. (Source: IEA, How to Avoid Gas Shortages in the European Union in 2023, 2022)
Energy prices are currently on a significant downward trend as confidence returns. However, 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:
Bearish temperatures, renewables – Mild weather conditions across the whole of northern and central Europe are undermining energy markets currently, as prices continue the strongly bearish momentum seen over the Christmas and New Year period. Temperatures are expected to remain above seasonal averages before forecasts predict a drop below in mid January. Prices are now lower than at the outbreak of the Russia-Ukraine war in February last year, as concerns over gas storage for the remainder of this winter dissipate. Prices nonetheless remain high versus historic values, but the losses seen since the start of the winter have been substantial. Windy conditions remained throughout last week with upwards of 13GW generated on Friday. Strong renewable output is expected to remain, reducing gas-for-power demand.
Strong LNG - There are currently a high number of LNG cargoes inbound to NW Europe as the TTF remains very slightly elevated against the Asian (EAX) benchmark, although potential changes to China’s economic policy and a change in weather could boost demand and increase competition. Shipping data confirms a healthy number of LNG vessels are due to arrive on British and European shores this month with 15 laden LNG vessels expected to arrive in British terminals by 27 January . Freeport LNG terminal is expected to return in January and Germany's Wilhelmshaven LNG terminal now inaugurated and ready to receive supplies.
French Nuclear Output – French nuclear availability for the remainder of January is scheduled to average 47.1GW, which is 5.3GW below the 2018-2022 average. Although availability sits still below the five-year average, the risk for supply has dissolved due to high wind-power output and mild temperatures in France expected through the coming weeks. Across the remainder of January, a total of five nuclear reactors are set to be offline, with an additional two online with reduced avail-ability for most of this month. This totals to 7.6W of unavailable capacity on the nuclear fleet as of 6 January. The news of further capacity coming back online means nuclear availability looks set to remain safe despite workers strikes announced for the remainder of January.
Storage Injections – Stock levels across Europe are little changed from the start of last week. Milder temperatures and strong LNG deliveries have caused storage levels to remain at 83.21%. Currently, storage sits at a significantly higher level than at this time over the past two years. This time last year, levels were at 53% fullness. The mandated targets meant that levels were always going to exceed 2021 rates, but the mild weather and plentiful LNG has allowed for more flexibility for the peak demand months. The EU's mandated target is to have at least 45% storage remaining by 1st February. Looking at current projections, we seem well on track to achieving this goal unless we’re surprised by an extreme prolonged weather event.
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:
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.
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