Blog
Government saves £0.26bn in December from reduced customer gas usage
Demand for gas amongst residential and small-business customers was almost 9% lower than expected in December, saving the government an estimated £260m on payments avoided via the Energy Price Guarantee (EPG) scheme.
We are facing an energy affordability crisis
The rising price of wholesale gas is impacting consumers across the UK, and new research from BFY suggests that things are only going to get worse. With the price cap for the Q4-22 set to outturn at £3,600 and the Q1-23 at over £4,700, the average bill for January alone is likely to reach £600 – a price that too many consumers will simply not be able to afford.
Energy Bills Projected To Reach £500 by January 2023
All time high wholesale prices for winter have pushed the forecast for the Q4 and Q1 price caps to new highs with average energy bills for January 2023 alone now forecast to be above £500.
It’s going to cost EUR62 Billion to meet new EU gas storage legislation
The European Commission proposed new legislation stating that countries would need to ensure gas storage sites reach 80% filled by 1st November. This is an attempt to ensure security of supply in the coming winter. However, with the current high prices seen in the market, partly driven by the conflict in Ukraine, the cost to reach this milestone based on current market prices, is significant.
Price Cap Rises to £1971
Shakespeare’s Richard III proclaimed that “Now is the winter of discontent”; with the announcement this morning of Ofgem’s price cap level for summer 2022, are we now heading towards a summer of discontent?
Deeper dive into European Gas Storage
We've seen a lot of discussion on how Gazprom owned/controlled gas storage sites have significantly lower inventory than seasonal norm, and our initial analysis shows that other site owners also have reduced volume.
Major European countries are 25%-40% short on gas inventories vs seasonal norms.
While we've discussed the position on Europe being ~15% short in aggregate, it's also important to look at the underlying position to find the drivers.
What's the risk of buying energy Day Ahead?
We were asked recently on what the risk/impact of buying energy Day Ahead, my initial view was 'more expensive in a risking market, cheaper in a falling market'.
As we firm up the level of the S-22 Price Cap, any unhedged customers will create significant losses
While customers continue to be individually protected by the Price Cap, the volatility in the wholesale markets means that any unhedged customers are likely to be loss making even at the projected ~£2,005 level of the Summer-22 Price Cap.
Price Cap level contracts are almost 100% underwater
Near term wholesale energy prices continue to increase across Europe, with significant increases in all along the forward curve.
Henry Hub prices present material arbitrage opportunity in Europe
Bloomberg reporting this morning that 30 Tankers of LNG are en route from the US to Europe. The tankers contain a total of 4.9 million cubic meters of LNG, which if I've got my maths right is ~1bn therms / ~32TWh - valuing the cargo at more than £4bn.
The multi-billion cost of supplier failures
As price volatility continues and further supplier failures are expected, the energy industry is looking ahead to April with the hope that the market may start to resemble something a little more normal and the impact of this winter will ease. Whilst it may be some time before we have full certainty, some consequences are already known.
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