Energy Update - January 2024
The Summer’24 contract, in line with other gas contracts, rose earlier in January due to colder weather before falling later in the month. The market took direction from colder than seasonal average temperatures, driving gas-fired generation demand. These gains were quickly retraced as the market returned its focus to the overall bearish fundamental picture. Supply stayed strong with storage levels remaining high for this time of year despite the cold spell earlier in the month. During January, companies continued to divert vessels around Africa’s Cape of Good Hope, adding nearly 10 days to the journey for LNG cargoes to Northern Europe. Due to this, freight volume through the Red Sea fell by around 65%. Overall, the Summer’24 contract ended January 7% lower month-on-month.
A comfortable supply and demand picture weighed on power prices in January.
Seasonal power contracts fell from December’s close. In the first trading session of the year, the Summer’24 contract fell by almost 12%, as market participants reevaluated the supply demand picture on the return from the Christmas break. Power prices fell in line with the gas market, as milder weather alongside stronger renewable energy output limited both domestic heating demand and reliance on gas-fired power generation. Cold spells were short-term, whilst supply also remained steady, adding further downwards pressure. However, as the month progressed, downwards momentum slowed, and contracts proceeded to trade relatively flat. Downside was limited by key technical levels which prompted buying activity, whilst conflict in the Middle East continued to unsettle the market. Meanwhile, a lower revision to temperature forecasts for February and into March also provided some support.
The EU CBAM: What It Could Mean for Your Business
The EU Carbon Border Adjustment Mechanism (CBAM) is a new policy that came into effect in the October of last year. The EU CBAM is due to start in full on the 1st of January 2026, as such, we are in a transitional phase until the 31st of December 2025. During this phase, businesses will be required to report on the carbon emissions of their imported goods but will not yet have to pay any charges. The CBAM builds upon existing efforts to address carbon leakage and complements the EU Emissions Trading System (ETS). It represents a significant step forward by implementing a broader carbon adjustment mechanism with potential implications for both climate policy and trade policy at the global level. Read more about it here: https://www.inenco.com/insight/blog/the-eu-cbam-what-it-could-mean-for-your-business/
The British Industry Supercharger Roll-Out To Begin
The British Industry Supercharger was announced by the UK Government in February 2023. Delivery details for the scheme are still being consulted on but roll out is anticipated to begin this year and aims to reduce electricity costs for Energy Intensive Industries (EIIs) by £20/MWh by 2025. Read more about it here: https://www.inenco.com/insight/blog/the-british-industry-supercharger-roll-out-to-begin/
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