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Energy Market Review 2024

Navigating the Current Landscape of Wholesale Energy Markets in 2024

As we step into 2024, the wholesale energy markets are displaying notable trends, showcasing a return to levels reminiscent of the pre-Russia/Ukraine conflict era. In particular, both gas and electricity prices have hit a two-year low, reflecting the ongoing impact of measures taken to secure energy supply in the UK and Europe.

Unraveling the Trends of 2023

Let's delve into the intricate story of wholesale energy prices throughout the past year, highlighting three significant periods:

  1. Q1 - A Steep Downward Trend: Prices continued their notable decline from the unprecedented highs experienced in the summer of 2022.

  2. April/May to November - Volatility Sets In: Markets entered a phase of range-bound volatility, shaping the landscape from spring until the end of November.

  3. Late November/Early December - Breaking Thresholds: Power and gas prices broke through the £100/MWh and 100p/therm thresholds in late November and early December, reaching two-year highs. However, by mid-January 2024, both power and gas prices have experienced a considerable decline of 28% and 31%, respectively, from the beginning of December.

Year-on-Year Reflections

On a Year-on-Year (YoY) basis, wholesale gas and power prices have witnessed a significant drop of 54% and 56%, respectively. Despite these decreases, it's worth noting that both prices remain well above their long-run average.

Recent Developments: Geopolitical Turmoil and Energy Markets

Surprisingly, recent developments in the Middle East, including ongoing geopolitical turmoil and disruptions to shipping traffic in the Red Sea, have not significantly impacted energy prices. Israel's extended conflict with Hamas and the declaration of war by Yemen-based Houthi rebels have led to missile launches and increased attacks on commercial ships.

While some shipping companies have rerouted vessels away from the Suez Canal due to these disruptions, the impact on wholesale energy prices has been minimal. This can be attributed to the relatively small volume of affected Liquified Natural Gas (LNG) and the flexibility of LNG contracts. Notably, the United States, now the largest LNG exporter, stands ready to contribute to any shortfalls in shipments to Europe.

Market Stability and Forward Projections

The UK, equipped with three permanent LNG terminals, has seen a surge in scheduled tanker arrivals, contributing to downward pressure on wholesale gas prices. Despite recent large withdrawals, gas storage levels across Europe remain above average.

Forward curves in the energy market suggest a leveling of prices over the next few years. With low supply risks, ample gas storage capacity, increased renewable energy production, and favorable economic conditions, the market appears to be heading toward a more stable phase.

Acknowledging Potential Challenges

However, it's essential to acknowledge potential challenges that could disrupt this newfound stability. Unpredictable extreme weather events, such as the Beast from the East in 2018, and heightened competition for LNG from thriving Asian economies pose uncertainties for global gas supplies. While wholesale energy prices are entering a more stable phase, the market remains fragile and susceptible to fluctuations in demand.

In conclusion, as we navigate the evolving landscape of wholesale energy markets, the journey ahead promises stability but demands vigilant attention to external factors that could sway the delicate balance of supply and demand.

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