NEWS FROM THE INDUSTRY
Global gas market braced for price war
With the prospect of a wave of US liquefied natural gas (LNG) supplies
starting to hit the market later this year, energy investors fear the
Russian state gas giant, Gazprom, may adopt the same strategy in the
gas market that Saudi Arabia has done in oil. It may seem like a gas
price war is the last thing that Russia, reeling from the impact of low
oil prices, needs. But analysts say that such a strategy may be
economically rational for Gazprom; already low prices in the European
gas market mean it could relatively easily push prices to a level that
would be unprofitable to ship LNG from the US and in doing so defend
its market share.
Such a move would have significant repercussions for the global
energy markets. A fully-fledged price war in the European gas market
could have a ripple effect across other regions and commodities —
from Australian LNG to Colombian coal — as well as threatening the
viability of the nascent US LNG industry. The argument in favour of a
price war is simple. Just as Saudi Arabia is the main producer for the
global oil market thanks to its ability to ramp up production if needed,
Gazprom is the main holder of spare capacity in the global gas market.
Just as Saudi Arabia has been unnerved by the prospect of US shale oil
producers eroding its market share, Gazprom faces a similar prospect
in the gas market. The first cargo of LNG from the USA is due to be
shipped in the next two months, and the total export capacity under
construction is equivalent to two-thirds of Gazprom’s exports to
Europe. Such a move would be cheaper to implement now because
European gas prices have already fallen dramatically in the past two
years. Analysts say a Gazprom-led price war could have two distinct
objectives. First, to price cargoes of US LNG out of the European
market in the short term; and second, to disincentives new
investments in LNG projects in the longer term. Giving consideration
to this, it would seem to make sense for the Russian company to push
down prices to keep US LNG out of the market.
Up to 50 UK gas and oil fields in the North Sea could be
forced to close this year, and up 140 over the next five years, due to the
slump in oil prices, according to analysts Wood Mackenzie.
Israel, Cyprus and Greece have announced plans to look
into the possible construction of a pipeline to bring gas from the Eastern
Mediterranean, where significant gas reserves have been found in
recent years, into mainland Europe.
Excess LNG supply into Japan, the world’s largest LNG
consumer, is being pushed back onto the global market, adding to
oversupply, and depressing Asian gas prices ─ boosting the prospect of
further LNG cargo diversions to Europe.
UK WEATHER FORECAST
UK TEMPERATURES
High
8°C
Low
1°C
The week will be one of
strong
winds
and
outbreaks of rain.
Gas prices shed more ground as market players appeared to refocus
on gas supply in Europe and expectations of a lasting overhang, as
LNG exports from the US and Australia ramp up this year and Asian
demand threatens to dwindle further. Production issues at Russia’s
only LNG terminal, Sakhalin-2, provided only marginal support.
Before the rebound, April ’16 Annual dropped below 30 p/th for the
first time reaching the lowest price for any Annual in almost nine
years. Many other periods have dipped below 30 p/th over the last
week. The lowest price tag was seen on June gas, which fell as low as
26.5 p/th ─ the weakest price for any gas period since December
2009, when Day-ahead prices fell beneath this level. Day-ahead
prices have fluctuated between 29-33 p/th as low wind levels
increased gas burn among generators, but prices then fell again as
temperatures and wind output has risen this week and the outages
ended. Total UK gas stocks remain comfortable. Overall UK storage
levels have dipped below 60% fullness up 10% on this time last year.
NEWS FROM THE INDUSTRY
Major Sporting Events Go Green
The stadium has teamed up with SSE Airtricity - Ireland’s largest
provider of wind power – who will supply green electricity and gas.
The move is expected to save almost 2,500 tonnes of carbon
emissions in 2016 alone, equivalent to the fuel emitted by a jet
circumnavigating the world 500 times or the carbon stored by 22
acres of mature rainforest. SSE Airtricity will also be helping the
stadium to cut its day-to-day energy use through a variety of
efficiency measures.
Until now, Cardiff’s Millennium Stadium has been arguable the
greenest venue in the competition, having achieved the BSI British
Standard 8901 for Sustainable Management Systems for Events. The
Cardiff stadium has LED lighting, rainwater harvesting, and a
segregated recycling system. Following the 2015 Rugby World Cup,
the stadium recycled 98% of the plastic advertising hoardings around
the venue.
The Six Nations is not the only international sporting event that went
green this weekend, as Sunday night saw the first ever carbonpositive Superbowl, in Santa Clara, California. This year’s venue, the
$1.2bn Levi's Stadium became the first stadium in the United States
to earn LEED Gold status when it opened in 2014. The facility boasts
1,162 solar panels, which are designed to generate more electricity
annually than is consumed during the 10 football games a year that it
hosts. There are also three solar panel-covered bridges serving as
entrances and exits to the stadium. Since Levi's Stadium was
constructed in the midst of California's longest-ever drought, water
stewardship was a top priority. About 85% of the water used at the
building is recycled water provided by the Santa Clara Valley Water
District. Around this year’s game, Pacific Gas & Electric (PG&E) will
provide a temporary green power infrastructure that will consist of,
electricity generated from hydrogen fuel cells, renewable diesel, and
grid-based green energy.
EDF is struggling to find financing for the Hinkley Point power
station, according to French press reports. More delays to the
construction of the nuclear plant will stir longer term fears about UK
power supplies, especially given the Government’s 2025 target to phase
out unabated coal-fired power stations.
The Competition and Markets Authority (CMA) has delayed
the provisional decision on its probe into energy markets until March.
Wind generation remains strong as storms cross the Atlantic
this week.
Annual prices hit the weakest level since March 2007 early in the
week, before rebounding 8%. Its rebound was held back slightly by
a weak and well-supplied short-term market. However, with other
Annuals witnessing relatively greater moves ─ October ’17 Annual,
for example, reached the lowest point of £32/MWh, before surging
by 10% ─ gains have since been eroded again. The markets for coal
and for EUAs (EU carbon allowances that generators factor into
prices) have provided some down-drag on UK power as they
struggled to rebound as much as other markets. EUAs in fact only
shedding further value amid the rally elsewhere. 2016 EUAs have
slipped below EUR 6/TCO2 for the first time in 15 months, again on
expectations of increasing volumes this year. Day-ahead surged
early last week, the highest level since December 2014, as
temperatures fell and wind output dropped suddenly amid
temporary outages and reduced imports through the France–UK
interconnector. The high prices were short-lived, however, as
warmer and windier weather returned, boosting wind farm output
and pushing prices to £40/MWh.
ELECTRICITY - £/MWh
LAST YEAR
THIS YEAR
DIFFERENCE
%
February
42.1
32.3
9.9
-23%
March
46.7
43.0
3.7
-8%
April
42.1
43.1
-1.0
2%
May
39.7
41.1
-1.4
4%
June
36.7
41.3
-4.6
13%
July
35.5
41.4
-5.9
17%
-0.1%
August
40.7
40.7
0.0
September
45.4
41.6
3.9
-8%
October
47.7
41.1
6.6
-14%
November
47.9
38.8
9.1
-19%
December
46.3
35.9
10.5
-23%
January
40.4
35.4
5.0
-12%