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Energy Update – Winter 2023

Energy Buying Information for Hoteliers

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

Outlook & Recommendations

Near Curve: The market currently exhibits robust bearish fundamentals that are poised to exert continued downward pressure on prices. However, there is a notable risk stemming from the potential rise in competitive dynamics due to a narrowing spread between EAX and TTF prices. This convergence is likely to intensify bidding competition between these two major regions. Furthermore, Japan is entering its winter period, a season that traditionally witnesses an elevated demand for gas. Similarly, China is showing signs of robust industrial activity, which could further contribute to increased gas demand. Despite the anticipated surge in competition, the overall impact is expected to remain relatively nominal during this period. This is attributed to the stability of supply from Norway and the presence of substantial storage reserves, ensuring the ability to meet the demand throughout the peak winter months.

Far Curve: The far curve prices are expected to be influenced by developments in the near curve markets. Bullish news geopolitically will be weighed against the bearish fundamentals for current delivery. Major European nations are anticipating comfortable supplies for the winter, which could alleviate premium prices for the S-24 (Summer 2024) and W-24 (Winter 2024) contracts. Even in the event of colder weather, it's likely that gas stocks will remain relatively healthy through March. Additionally, there will be a focus on longer-term LNG competition to determine if Asian prices will diverge from European prices. The premium that Asia holds over Europe has been minimal for the past 4-5 weeks but is a volatile driver as seen during the sensitivity to global LNG supply disruption.

Utility Trading Graphs

Market Conditions / Price Drivers:

Renewable Generation & Weather: Prompt contracts remained volatile due to declining wind speeds and temperatures over week 45, placing pressure on the gas system. However, weekend contracts lost value in anticipation of higher wind speeds when Storm Debie arrives in the UK. Traders are weighing up recent near-term weather forecasts suggesting high levels of wind generation across NW Europe and temperatures sitting above seasonal norms until the end of November, dampening withdrawal rates and keeping storage levels higher for longer.

LNG: Europe continues to be the most attractive destination for US LNG shippers. Despite the EAX retaining its premium, US shippers would much rather deliver to European shores when shipping costs are considered. Asian LNG prices have fallen in line with the TTF in recent weeks and still maintains a premium over its counterpart.

Gas Storage: Injections into storage sites have slowed with some operators switching to net withdrawals due to colder temperatures and higher demand. Storage levels still sit comfortably at 99.32% and will continue to weigh on European pricing, helping prices further out on the curve push lower. Planned maintenance caused withdrawals from Rough storage to halt on 9 November but have since returned to full operations.

Israel/Hamas: Markets remain tentative to the ongoing conflict in the middle East with some bullish days attributed to risk premium being built back into future contracts due to the fear of escalations. The primary energy-related impact thus far has been the suspension of Israeli gas exports to Egypt. Egypt occasionally serves as a supplier of liquefied natural gas (LNG) to Europe. Another concern is Iran’s potential introduction to the conflict, which could provide a potential downswing to LNG imports due to disruption caused on the Strait of Hormuz, through which a quarter of global LNG passes through.

Norwegian Maintenance: During week 45, Norwegian flow rates recorded their highest level since April, at 342mcm/day. An unplanned outage at Oseberg due to a compression failure curtailed 26mcm/day but is expected to return on 14th October. Works at Karsto gas processing facility also limited flow rates during week 45. Spot prices rose midweek after an outage at St Fergus terminal in Aberdeenshire was extended until 10th November. Prices settled after technical capacity at the site returned on Friday.

French Nuclear Output: French nuclear output has picked up once again after Storm Ciaran caused disruptions to some of EDF’s nuclear sites. French nuclear is expected to hit 50GW over the next few weeks, sitting well above the 5-year average.

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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