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
Upside risk remains in 2023. Last winter 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 (China’s economic growth and temperatures) become less favourable during 2023.
The effects of striking action across France’s nuclear fleet and LNG facilities acts as a reminder of Europe’s unprecedented situation with high volatility still expected throughout 2023. Despite robust storage levels and a high influx of LNG into European shores, concerns over the French nuclear fleet caused risk premium to be built back into products starting from Oct-23, with some uncertainty of Europe’s energy security entering Winter 2023. Europe is cautiously optimistic with demand forecast to drop by 5% this year. However, a dry summer, cold Q4-23 and a lack of LNG if Asia becomes a greater competitor could prove detrimental.
The positive storage situation and recent warm weather created bearish sentiment over the far curve, although understandably the strongest losses are in the short-term markets. A potential new driver, of economic downturn and recession could drag on prices as the year progresses. With growing confidence that the worst-case winter scenario has been avoided and that a more manageable end to the period is likely, we could find ourselves in a comfortable situation as we advance through summer. However, prices will need to remain competitive to continue to attract the LNG volumes required to replenish gas stocks without the supply from Russia.
Energy prices are currently levelling out as we enter the typical summer periods. For the best avoidance of risk, it is 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:
Gas storage - European stock levels currently sit at 65.61% fullness, more than 22 percentage points above last years level. Despite a colder than average April and start of May, the gas has been injected into storage as demand levels have been weaker. With each day the challenge to refill storage to meet the EU’s mandated target of 90% fullness by 1st November is reducing, all though markets are yet to fully remove risk premium from longer dated contracts. Some market participants believe Europe could reach the mandated levels by early September or even late August, however this will be dependent on Europe receiving high LNG volumes.
LNG (Liquid Natural Gas) – The strong gas storage levels and weaker demand have been matched with strong LNG imports to Europe. Front month prices have fallen to nearly their lowest level in 2 years as a result. The TTF contracts are approaching the support level of €30/MWh on the near curve, at which point greater industrial usage is forecast to return and lift demand. Maintenance works across UK, French and Italian LNG terminals in the next week may reduce send-out in the coming week, although demand is forecast to be weaker. At present, both Asian and European LNG prices continue to move lower in tandem, with Europe retaining a small price premium. Market opinion from Reuters analysts suggest that the current LNG prices are in the sweet spot of being low enough to boost buying interest but not so low that is sparks a surge in demand.
Norwegian Maintenance – Curtailments of Norwegian gas exports to Europe and UK are forecast to hit their May peak this coming week. Maintenance at St Fergus entry point in the UK is set to begin on 24 May which will reduce import capacity by 27mcm until mid August. Other works in Norway will continue to reduce the UK’s ability to import gas from Norway by 134mcm/day from 22-29th May before tapering lower.
Temperatures/Renewable Output – Milder conditions are forecast for the majority of Europe for the next fortnight, although play less of a significant part on price as it is largely neither too cold for central heating or too hot for air conditioning. Increased wind and solar forecasts for the upcoming week in UK, Germany and France will help ease spot prices and allow for further gas injections in storage as the demand for gas from the power sector is likely to be reduced.
Nuclear – EDF’s Chooz-1 restarted during week 19 after being offline since 2021 for repairs. Penly-1’s restart is now delayed by 10 days. French nuclear availability is set to average 36.6GW in week 20, 2.6GW below the 5-year average. Three UK nuclear power plants are expected to return to full production by the end of May. Sites include EDF’s Sizewell B reactors which have been offline since February.
UK Support MEASUREs: The Energy Bill discount Scheme (EBDS)
The EBDS scheme was announced on January 9th and supports UK businesses for 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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