Energy Hub – Powered by GET – April 2024

Monthly electricity stats In March, wind power once again emerged as our primary source of electricity generation, accounting for 32.9% of our total output. A significant milestone was reached as over half (51%) of our electricity was sourced from zero-carbon sources, with a peak of 84% achieved on March 23rd at 11am. The increased utilization of renewable energy resources has led to a continued decrease in the carbon intensity of our electricity generation as we transition into the summer months, with an average of 127gCO2/kWh. A total of 24TWh of electricity flowed through our network in March, equivalent to the energy required to boil a staggering 4,840 billion kettles. The highest demand for electricity was recorded on March 11th at 6pm. Weather The most recent EC46 forecast indicates that temperatures will remain below seasonal averages until April 28th, after which they are expected to rise above seasonal norms for the remainder of the forecast period. This slightly warmer outlook contrasts with previous models, suggesting a potential shift in weather patterns. Wind power generation for the upcoming week has been revised downward significantly, falling well below seasonal norms. This adjustment may lead to an increase in prompt UK energy prices due to reduced overall generation and an increased reliance on gas during periods of low wind. Each month seems to bring new records and this month was no different. Dubai typically experiences long periods of dry weather punctuated by sporadic, heavy rainfall events. However, the recent rainfall in the region was particularly rare, with the city receiving 10 inches of rain in just one day, compared to its average annual rainfall of less than four inches. The cause of this unusual event is uncertain, with factors such as climate change and cloud seeding potentially playing a role. It is worth noting that warmer air has the capacity to hold more moisture, about 7% extra for every degree Celsius, leading to more intense rainfall events. If current trends continue and humans persist in burning fossil fuels such as oil, gas, and coal, the climate will continue to warm, resulting in heavier rainfall and an increased risk of flooding. This underscores the urgent need for sustainable energy practices to mitigate the impacts of climate change and protect vulnerable communities from its consequences.

Storage The European Union’s aggregate gas storage levels have shown minimal gains, currently standing at 62.1%, which is 22% above the 5-year average. This surplus in storage capacity may be contributing to the downward pressure on near-curve UK gas prices. As of today, April 23rd, we are 4% above last year’s peak levels. Following two consecutive mild winters and increased wind energy production, gas storage levels have reached unprecedented highs. This bodes well for the upcoming summer season and signals a potential for reaching near-capacity levels for next winter. Towards the end of last month, an underground gas storage facility in Ukraine fell victim to an attack by Russia. Ukraine’s state-owned energy firm, Naftogaz, reported the incident but assured that gas supplies to consumers remained unaffected. The targeted storage site, located deep underground, managed to maintain operational integrity despite the attack. As previously highlighted, the EU had been utilizing this facility to store surplus gas for the winter season. While the attack may not have caused significant disruptions to operations, it has likely instilled a sense of unease among European suppliers regarding the safety of storing gas at this site.

LNG The United Kingdom is currently expecting three LNG cargoes to arrive within the next twelve days, with one cargo scheduled to reach South Hook today. Despite recent geopolitical tensions, global LNG prices remain stable. Last week, the European Parliament approved regulations that empower individual governments within the regional bloc to prohibit Russian LNG imports on a national level by restricting Russian companies from reserving gas infrastructure capacity. Data from Kpler indicates that Europe’s reliance on Russian LNG has been on the rise, with record imports of 15.54 million tonnes of liquefied gas unloaded at EU ports last year. In 2024, Russian imports have increased even further, with Russia now accounting for 16% of the continent’s LNG supply, up from 12.75% in the first four months of 2023. In January of this year, the Biden administration made a controversial decision to halt the approval of new licenses for exporting liquefied natural gas (LNG). President Biden stated that during this pause, the U.S. Department of Energy will evaluate whether the nation’s significant LNG exports are negatively impacting domestic energy security, increasing consumer costs, and harming the environment. As the largest LNG exporter globally, this decision has significant implications for the energy sector worldwide and poses a significant challenge for countries that have traditionally relied on U.S. LNG exports to meet their energy needs. This decision is particularly concerning for developing nations that view affordable natural gas as the most viable alternative to coal. While the Biden administration argues that the LNG pause is necessary to protect the environment and other interests, it could potentially worsen global emissions by pushing countries back towards heavy coal reliance.

Infrastructure Maintenance periods for Norwegian assets are strategically scheduled at the beginning and end of summer, specifically in April/May and August/September. The most significant maintenance activities typically occur towards the end of summer. Tomorrow planned outages are set to commence at Aasta Hansteen and Nyhamna, as part of the annual maintenance program for various Norwegian assets. Total export nominations from Norway to the continent have decreased to 330mcm/day due to the planned maintenance at Dvalin, which began yesterday. These maintenance periods are typically announced well in advance, allowing the market to factor in the planned outages into forward prices. However, unforeseen additional maintenance or changes to the outage schedule are not always accounted for by the market. It is common for scheduled maintenance periods to be extended due to unexpected work that arises during inspections, leading to potential negative impacts on prices due to supply disruptions. Currently, the Langeled pipeline from Norway to the UK is meeting approximately 35% of the daily demand. Therefore, any disruptions in supply due to maintenance could significantly impact the UK market. Significant hydrogen production initiatives are progressing in accordance with clear EU directives and regulatory frameworks. The net-zero carbon hydrogen industry is transitioning from pilot-scale projects with 10-20 MW of electrolysis capacity to larger-scale projects exceeding 100-200 MW. Despite a notable gap between the number of announced projects and those achieving financial closure, several reputable projects are securing funding and commencing construction. One such project is Shell’s Hydrogen Holland I endeavor on the Maasvlakte, currently in the construction phase. This initiative involves a 200MW electrolysis plant, powered by electricity from the Hollandse Kust (Noord) offshore wind farm, to supply hydrogen to the Shell Energy and Chemicals Park via the HyTransPort pipeline. The alkaline water electrolysis plant will be fabricated by Thyssenkrupp Uhde. Additionally, the German state-owned energy company Uniper is advancing its H2Maasvlakte project, aiming to have 100MW of electrolysis capacity for green hydrogen production by 2026, with plans for expansion to 500MW by 2030. US-based company Plug Power Inc. will contribute PEM electrolyzer technology to this initiative. In France, Air Liquide’s Normand’Hy project has secured public funding for the development of a 200 MW electrolysis plant. This plant will supply renewable and low-carbon hydrogen to a TotalEnergies refinery and other industrial users in the Normandy industrial basin, with operations expected to commence in the latter half of 2026. While these large-scale projects are commendable, Noé van Hulst, Special Advisor for Hydrogen at the International Energy Agency, believes that the number of active projects in Europe is insufficient. He notes that Europe is progressing at a slower pace than anticipated, citing uncertainties surrounding support schemes and national implementation of EU directives. Van Hulst emphasizes the need to accelerate efforts to align with EU targets.

Geopolitical drives Wholesale natural gas spot prices across Europe and the UK experienced a decline in yesterday’s trading session, attributed to a decrease in geopolitical tensions. The strike on Iran that occurred on Friday was initially planned to be more extensive in scope. However, due to significant pressure from allies, Israeli leaders agreed to scale back the attack. A broader and more damaging strike would have made it more difficult for Iran to ignore, potentially leading to a forceful Iranian retaliation that could have escalated into a major regional conflict in the Middle East. Israeli officials indicated that the intention behind the strike was to allow Iran to move forward without retaliating, while also demonstrating Israel’s capability to target Iran without entering its airspace or triggering its air defence systems. Additionally, Israel aimed to showcase its ability to target air defence systems in central Iran, where key nuclear facilities such as the uranium enrichment site at Natanz are located. This implied that Israel could have targeted these facilities if necessary. We are currently facing uncertain times marked by global conflicts and the pivotal decisions that Americans must make in the upcoming U.S. presidential election. The U.S. oil and gas industry has shown a clear preference for President Trump, as evidenced by its substantial donation of $7.5 million to his campaign. In contrast, President Biden has received just over $1 million from energy sector groups. President Trump, the presumptive Republican nominee and former president, has promised to reinstate policies that support increased oil and gas production in the United States. The industry, feeling targeted by Biden’s climate legislation, has criticized what it perceives as ineffective energy policies. This frustration is fuelled by the current Administration’s limited lease sales, proposed methane emissions tax, and delays in approving LNG export projects. Despite the industry’s support for Trump, some of his key campaign promises, such as repealing the Inflation Reduction Act (IRA) and imposing trade tariffs, particularly a 60% tariff on Chinese goods, may not align with the interests of the oil and gas sector. If implemented, these measures could lead to higher costs for energy projects due to increased prices for steel and aluminum pipes, as well as inflationary pressures resulting from disrupted trade routes.

Summary Due to ongoing geopolitical tensions, increased demand resulting from lower temperatures and reduced wind generation has caused the pricing curve to rise from its previous lows at the end of February. As tensions appear to be easing and the heating season is expected to come to an end soon, the curve is projected to stabilize and follow a downward trajectory. However, there are still significant uncertainties on the horizon, including the upcoming general election in the UK, the Presidential election in the US, and persistent inflationary data in the US. The UK is hopeful that inflation will align with government policies next month, falling back within the 2% range. This could potentially lead to a reduction in interest rates. However, the US data is not as promising. A decrease in UK interest rates could potentially weaken the pound against the dollar, resulting in import inflation. The energy sector is poised for a period of volatility and uncertainty in the coming months. These developments will undoubtedly have a significant impact on pricing and market dynamics. Stay tuned for further updates as we navigate through these interesting times in the energy sector. If you would like a more in-depth discussion on any of the points raised, please don’t hesitate to get in contact on 02476308830 or email on info@getsolutions.co.uk. Victor Levison.