Energy Hub – Powered by GET – March 2024

Monthly electricity stats In February, wind power emerged as our primary source of electricity generation, accounting for a significant 34.8% of our total output. Impressively, over half (51%) of our electricity was sourced from zero-carbon sources, reaching a peak of 84% on February 4th at 12:30pm. The increased utilization of renewables resulted in an average carbon intensity of 133gCO2/kWh, marking the lowest level achieved in the past year. This promising trend bodes well as we transition into the spring and summer months, where renewables are expected to play an even more substantial role in meeting our electricity needs. Notably, electricity demand reached its peak on February 7th at 5:30pm, underscoring the importance of continued efforts to enhance our energy efficiency and sustainability practices. Weather The recent trend of unusually high or low temperatures has become the new normal, a clear indication of the impact of climate change. Traditional weather patterns no longer seem to apply, making it challenging to predict future temperature trends. While temperatures are currently mild, they are expected to gradually decrease towards the weekend, bringing a colder feel. Forecast models suggest a period of cold temperatures next week, followed by a return to more typical seasonal norms. Wind speeds are currently below average but are projected to increase over the weekend and remain mostly above average for the next two weeks. As we approach the end of the heating season, it is important to acknowledge the fortunate weather conditions we have experienced. Two consecutive mild winters have resulted in reduced heating demand for both gas and electricity. The recent winter in Northwest Europe has been characterized by mild, wet, and windy weather, leading to a decrease in heating demand and an increase in wind farm generation. Despite the challenges posed by the Russian invasion of Ukraine, which has impacted energy supplies, it is crucial to recognize the role that favourable weather conditions have played in mitigating the energy crisis. Policy makers in the UK and Europe should not solely attribute the management of the energy crisis to their actions but also acknowledge the significant role that luck has played in the form of mild weather conditions.

Storage Building on the previous points, it is important to recognize that the current favourable conditions in the region may not be sustained indefinitely. The unprecedented levels of gas inventories we have seen are largely a result of unusually mild and windy winters. Presently, storage levels across Europe are at their highest in the past five years, hovering just above 59.5% with an daily extraction rate of 0.2%. However, it is crucial to remain vigilant and proactive in our approach. If we do not experience a cold spell in April and begin injecting gas into storage in the coming weeks, we could see levels stay above 55%. It is imperative that we do not become complacent and instead prepare for potential challenges while also hoping for the best. The mild winters we have experienced recently have not truly tested our resilience since the Russian invasion. It is unrealistic to expect every winter in the foreseeable future to be as mild and windy. Therefore, it would be prudent to consider utilizing more of the additional storage capacity that Ukraine offers to Europe. This strategic decision would help to ensure a more secure and stable energy supply in the face of potential uncertainties.

LNG The current LNG prices are experiencing a positive trend, largely attributed to the decreased demand in Europe and Asia resulting from a mild winter. While this may seem like good news, it could potentially have negative implications in the near future. Presently, LNG prices in Asia, the UK, and Europe are hovering around 2.5p/kWh, while in America, they are priced at 0.4p/kWh on the Henry Hub exchange. These historically low prices have prompted major producers to cut spending and reduce production, with the US experiencing its lowest prices in over two decades. In the words of Charles Dickens, “It was the best of times, it was the worst of times.” This quote from his 1859 novel, A Tale of Two Cities, aptly captures the current state of the natural gas market. While abundant gas supplies are favourable, they have led to unfavourable prices for producers. Recently, Chesapeake Energy, a prominent gas driller in the Marcellus and Haynesville basins, announced a strategic 20% reduction in new gas capital expenditures during their quarterly earnings call. This move reflects a broader trend among shale operators to tighten their budgets in anticipation of better market conditions. Antero Resources, another Marcellus driller, has also implemented a 26% reduction in capital expenditures. In the US, which currently supplies the majority of LNG to the UK and Europe, operators are facing a delicate balance. The impending increase in new demand between 2025-2028, driven by the completion of LNG plants in the Gulf of Mexico and Mexico’s West Coast, will require pipeline gas. Additionally, the anticipated rise in industrial and power-generated demand during this period could swiftly transform the current gas surplus into a deficit, leading to a rapid escalation in prices.

Infrastructure Europe is currently in the midst of a push to diversify its energy sources and achieve true energy independence. The European Union has even suggested that gas can sometimes be considered a green energy source. This shift in mindset has created a unique opportunity to tap into Europe’s greatest asset: its vast, untapped natural gas reserves. For years, potential natural gas reserves in Europe have been overlooked. However, Canadian energy company MCF Energy is now on a mission to help secure Europe’s energy independence by exploring these long-ignored assets. With the recent acquisition of a proven target in Germany, the energy landscape in Europe could see a significant shift in the coming months. MCF Energy is focusing its efforts on a concession in Lech, spanning approximately 10 square kilometers in Bavaria. This property already boasts three wells that were drilled decades ago, with two confirming discoveries of natural gas. Mobil Oil began drilling at the site in the early 1980s in search of oil, but instead found a significant gas reservoir. Despite initial testing showing a maximum flow rate of 24 million cubic feet per day of natural gas with associated condensate, the assets have remained largely untouched for over 40 years due to low natural gas prices. By leveraging the extensive 3D seismic imaging data acquired by Mobil Oil, MCF Energy is poised to play a crucial role in helping Europe reduce its reliance on Russian gas. For investors interested in the energy sector, MCF Energy, under the leadership of CEO James Hill, may be a company worth keeping an eye on due to its promising track record. The National Grid’s Beyond 2030 plan proposes a £60 billion investment to modernize the UK’s electricity network for onshore and offshore. This ambitious plan aims to achieve 86GW of offshore wind by 2035, surpassing the current total capacity worldwide. The project will involve laying thousands of miles of cables, potentially creating an electrical spine to efficiently transport wind power across the country while minimizing the need for unsightly pylons. As we consider the importance of energy security this month, it is clear that the UK is uniquely positioned to capitalize on its abundant natural resources to achieve this goal. While renewable energy sources such as wind and solar power have been the primary focus, challenges arise when faced with periods of low wind and sunlight. In these instances, reliance on gas turbines becomes necessary. The proposed investment in offshore wind power represents a significant step towards a more sustainable and reliable energy future for the UK. By diversifying our energy sources and investing in innovative infrastructure, we can ensure a more resilient and efficient electricity network for generations to come. Recent studies conducted by LUT University in Finland have shed light on the United Kingdom’s potential for wave and tidal energy development. This growing interest indicates a shift towards integrating wave and tidal power into national clean energy strategies, despite historical obstacles related to cost, maintenance, and system lifespan. Researchers at LUT University have produced a report that cleverly links wind energy with wave and tidal power. By leveraging existing offshore wind infrastructure, such as cables and maintenance vessels, the integration of wave and tidal solutions becomes more cost-effective and feasible. This innovative approach not only reduces costs but also enhances the viability of wave and tidal energy generation. Moreover, when combined with Gravity batteries, these innovative batteries store gravitational energy by lifting a mass to a certain height, eliminating the need for environmentally harmful lithium batteries. The long-term benefits and cost reductions make this investment a promising option for the future. Despite these advancements, the UK government lacks a clear strategy for wave and tidal power development. By prioritizing and investing in these sustainable energy sources, the UK can position itself as a leader in clean energy innovation and reduce its reliance on traditional fossil fuels

Geopolitical drives The Biden administration has announced a temporary pause on new liquefied natural gas (LNG) export authorizations for proposed projects. This decision will not affect current exports or projects that are under construction, but a longer-term policy shift would have implications for both markets and geopolitics. U.S. LNG as well as Norwegian pipeline gas helped Europe withstand the economic shock of Russia’s weaponization of gas supplies and kept solidarity behind Ukraine. Mild weather and prudent stockpiling have calmed immediate concerns in Europe about lost supplies. Russian imports still constitute 20 percent of Europe’s gas supply, but Ukraine’s last remaining contract for transit volumes from Russia is due to end in 2024 and governments across Europe have no intention to resume larger gas imports from Russia. However, as European buyers seek a full divorce from Russian gas, the pause on new LNG project approvals will raise some longer-term concerns. Scarcer supplies from the United States after 2030 could make this more challenging. With Asian demand every increasing, reductions in Europe due to using more renewals sources may well be out weighted by increase from Aisia. Also U.S. supplies help alleviate supply risks. For Europe, cargoes from the Middle East and Australia typically transit through the Persian Gulf and the Suez Canal. We are currently experiencing the problems with this transit route, Houthis attacks. In the Pacific, Most LNG shipments to Asia must pass through the Taiwan Strait and the South and East China Seas. Japan is deeply concerned about maritime transit risk, especially if geopolitical tensions grow in the South China Sea. U.S. LNG shipping avoids some of these risks as it can transverse the Atlantic to reach Europe as well as the Pacific for East Asia. If Trump become the next president and looks to make ‘America great again’, by putting ‘America first’, we may see additional costs or even reduced supplies. The Biden administration has recently announced a temporary halt on new liquefied natural gas (LNG) export authorizations for proposed projects. This decision will not impact current exports or projects currently in progress, but a potential shift in long-term policy could have significant implications for both markets and geopolitics. The utilization of U.S. LNG, along with Norwegian pipeline gas, played a crucial role in helping Europe withstand the economic repercussions of Russia’s manipulation of gas supplies, while also maintaining solidarity in support of Ukraine. Despite initial concerns in Europe regarding potential supply shortages, mild weather conditions and strategic stockpiling have helped alleviate immediate worries. Although Russian imports still account for 20% of Europe’s gas supply, the impending expiration of Ukraine’s transit contract with Russia in 2024, coupled with the reluctance of European governments to resume significant gas imports from Russia, indicates a desire for a complete separation from Russian gas. However, as European buyers strive to sever ties with Russian gas, the temporary pause on new LNG project approvals raises concerns for the future. The potential scarcity of U.S. supplies post-2030 could pose challenges, particularly with the increasing demand in Asia potentially outweighing any reductions in Europe resulting from a shift towards renewable energy sources. Furthermore, U.S. LNG shipments offer a strategic advantage in mitigating supply risks. Unlike cargoes from the Middle East and Australia that typically pass through high-risk transit routes such as the Persian Gulf and the Suez Canal, U.S. LNG shipments can navigate safer routes through the Atlantic to reach Europe and the Pacific for East Asia. This is particularly relevant given the current challenges faced in transit routes due to events such as Houthi attacks in the Middle East and potential geopolitical tensions in the South China Sea. Looking ahead, the potential implications of a Trump presidency, with a focus on “America first” policies, could lead to additional costs or reduced supplies in the LNG market. As such, it is essential for stakeholders to closely monitor developments in the LNG sector.

Summary Earlier this month, we observed a significant increase in gas prices, with prices rising by over 10% across the board. This surge was partly attributed to the announcement of a delay in the return to operation of one of the LNG trains at Freeport’s facility. Additionally, disruptions in Norway, as Gassco nominations were affected by outages, further impacted the market. Our reliance on narrow margins has never been more apparent, with a heavy emphasis on production from facilities in the U.S., particularly at Freeport, and our counterparts in Norway. The market appeared to hit a low point on February 22nd, marking a potential turning point for the next price movement. As we navigate through market fluctuations, it is crucial to stay informed, identify these dips, and take advantage of them the next time the market hits these points. It is essential to remain vigilant and capitalize on opportunities presented by market fluctuations. By being a member of Get Solutions Energy baskets, you can leverage our wealth of knowledge and expertise to your advantage. 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.