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Welcome to the July edition of our monthly energy market insight.

With UK politics temporarily deflecting media attention away from spiralling energy markets, we review the events that are driving winter-22 energy prices to all-time highs and engage in some risky speculation regarding what might happen next.

Natural Gas Prices

In previous editions of our market narrative, we looked at the EU Commission’s requirement for member states to fill gas storage facilities to more than 80% capacity by November. The intent here is obvious – to safeguard against the uncertainty of gas shortages this winter, amid fears that Russian supplies may be withheld. Last month we reported downward pressure on prices, but since then there has been a sharp increase, largely due to reduced Russian flows. As this situation has persisted, many commentators are now expecting gas storage in northwest Europe to fall short of the target levels. At time of writing, total storage on the continent is around 62% of capacity.

Gazprom reported issues at the Portovaya compressor facility on 20th June, which is a part of the important Nord Stream 1 pipeline. The price impact of this was compounded by news of further reductions to LNG imports - the fire we reported last month at the US Freeway LNG terminal had initially resulted in an expected closure of the site for 3 weeks, but estimates were since revised to more than 3 months.

Following further reductions of Russian supply into Italy, Austria and Slovakia, the head of the International Energy Agency stated that Russia may be acting strategically, rather than experiencing genuine technical issues. However, Gazprom denied this and later blamed continued reduced flows via Nord Stream 1 on a delay to the return of equipment from Canada for the Portovaya compressor. Siemens Energy in Canada had been initially unable to return the equipment as scheduled due to a potential breach of sanctions against Russia, although this matter was eventually resolved on 11th July, and they are aiming to return it as soon as possible.

Nord Stream 1 is currently undergoing its usual summer maintenance, which is scheduled to run until 21st July. There will be much focus on output of the pipeline at this point, which many will take to be a barometer for what is to follow into this winter.

The below graph highlights the sharp increase in the winter-22 NBP price across the last month, and the table provides a snapshot at market close on 14th July:

Power Prices

The forward curve has largely mirrored movement in natural gas markets, as illustrated by the following graph:

This table (below) reports UK baseload prices at market close on 14th July and appears to paint a familiar picture. However, there are some additional factors currently in play affecting power prices. Clearly, we are experiencing temperatures above the seasonal norm across much of Europe, which is driving cooling demand. There is also reduced wind at present which is increasing the gas-for-power demand at a time when this is most unwelcome.


Speculation is rife regarding Russia’s alleged intentions to “weaponize” gas this winter. As referenced above, there will be a clear focus on flows via the Nord Stream 1 pipeline when scheduled maintenance concludes on 21st July. But we should also be mindful that there are other factors exacerbating the current energy crisis.

We noted already the impact of the closure at the US Freeway LNG terminal. But we have also seen issues in Norway, which is the second largest source of gas for Europe in normal times. The Norwegian government quickly resolved a strike by offshore workers in early July, but we have also seen recent failings in Norwegian infrastructure, which is causing further concern over the reliability of supplies.

Closer to home, perhaps the biggest own goal for the UK has been the long-standing failure to invest properly into growing gas storage capacity. We currently operate nine times less than Germany. And Germany has already activated the second phase of its gas rationing plan, which entails utilising pricing mechanisms to motivate reduced gas consumption.

But the overarching question is where will energy prices go next, and is it best to renew supply contracts early or wait out what we might hope to be a temporary spike in prices? Unfortunately, the answer to this is far from clear. At BMU we’re in regular contact with various trading desks and the truth is that there is no consistent view of what happens next. Some adhere to the mantra that markets are cyclical so it’s just a matter of time before prices reduce, whereas others are suggesting much tougher times are ahead.

Much of course depends upon an individual consumer’s appetite for risk. Should you bite the bullet and secure contracts now or take a chance on markets falling? It would seem unlikely that Russia could afford to completely suspend gas flows to Europe, primarily because it needs to prop up an economy that is in deep recession. However, it is hard to see prices returning to levels seen a month ago when Europe has fallen so far behind with injections to gas storage. One thing is for certain; 2022 has already seen several events that would have seemed highly improbable a year ago, so we should rule nothing out.



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