Energy Market Update: Trends, Risks, and Strategies for 2023

In this energy market update, we take a closer look at the current trends, potential risks, and strategies for energy procurement in 2023.

Key Market Trends

Prices are currently trending lower for several reasons:

  • High European storage levels – With higher storage levels, gas injection demand for the remainder of the summer is expected to be lower compared to previous years. The market has already priced this in.
  • Increased LNG cargo arrivals – The NBP and TTF price are at a premium compared to the JKM (Asian gas price), making it more profitable for LNG cargoes to berth at UK and European terminals. The UK is expecting 12 LNG cargoes in the next two weeks.
  • Policy incentives to reduce demand – Talks across Europe suggest policy incentives rewarding demand destruction, allowing Europe to cope in the absence of pipelined Russian gas supply. This could potentially reduce demand by 15%.

These factors are causing the market to trend lower for the remainder of the summer months. However, the winter contract remains firm.

Risks and Volatility in Winter Contracts

The winter 2023 gas price is relatively cheap compared to 2022 prices. However, the winter contract will likely remain volatile due to issues with the French nuclear fleet. EDF has confirmed its lower nuclear power production target for 2023, between 300 and 330 TWh, which is historically lower compared to previous years.

The impact of negative news regarding French nuclear power production can cause the market to increase by 20-30% or more. Given the problematic nature of the nuclear fleet, it’s crucial to consider this risk when planning energy procurement.

Procurement Strategies for 2023

Winter Contracts

In light of the current market trends and risks, we recommend securing winter 2023 contracts now. Prices are hovering around the lows since the Russian invasion of Ukraine, and winter 2023 contracts are relatively well-priced. With the ongoing volatility and uncertainties surrounding winter energy supplies, it’s wise to secure contracts at current price levels instead of waiting and potentially paying higher prices later.

Summer Contracts

For summer 2023 start dates, our current strategy is to remain on the Day Ahead market.

Day Ahead power prices for April 2023 averaged around £10/MWh lower than prior to settlement. The Day Ahead market remains well supplied, and being on the Day Ahead for May, June, and July 2023 could be more beneficial prior to buying at delivery. However, this strategy largely depends on there being no further reductions in French nuclear availability this winter.

Keep in mind that being on the Day Ahead for August and September 2023 could carry some risk, as September shoulders the winter month of October, and winter 2023 could be volatile due to French nuclear issues.

Stay informed and make well-informed decisions about your energy procurement strategies by keeping up to date with market trends and expert insights.

By Ramnikh Kular, Senior Energy Trader

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