- Gas prices dropped slightly during the first half of July despite day-to-day volatility. However, by the end of the month, prices had rocketed to record highs.
- Supply uncertainty continues throughout July as the UK’s gas storage levels remain unable to start a recovery. This is due in part to planned and unplanned maintenance within the European gas network, in addition to Russia’s unwillingness to increase gas supplies.
- European storage mimics UK’s levels, maintaining record lows of approximately 55% capacity compared with 85% this time last year. This is due to low flows from Norway and the continent which continue to force withdrawals during the summer months when we would usually expect injections.
- As the Asia gas markets premium against Europe’s holds, LNG cargo ships persistently head east, limiting arrivals to European hubs and preventing additional capacity from coming online or storage facilities from being replenished.
- Meanwhile, above-average temperatures coupled with low renewables has seen the gas to power demand rise across Europe.
- The UK electricity prices continue to follow gas market trends: a slight decline across the beginning of the month, followed by a steep increase as July came to a close.
- The demand for gas to power has remained high throughout July in both UK and Europe, as low wind strengths across the UK and Germany has reduced renewable power generation, while shutdowns in France’s nuclear power plants has reduced their carbon-neutral power capacity further.
- Unseasonal weather patterns have seen temperatures change from above to below average across most of Northern Europe, increasing pressures on demand.
- Despite the spiking gas markets, July saw carbon prices remain relatively stable.
- The price of Brent crude oil is up 43% this year, sitting at around 75 USD a barrel, as a result of reopening economies and rising inflation.
- During mid-July, OPEC and Russia agreed to boost oil supplies by a further 2 million barrels per day from the beginning of August until December 2021 to help stabilise the market, as prices climbed to the highest they’ve been for two and a half years.
- As renewable energy generation left power supplies low both in the UK and on the continent, additional coal and other carbon emitting sources have been brought online to make up the difference.
- This has led to the UK hitting a coal-burning streak from June 25th to July 28th.
- Meanwhile, global banks including HSBC and Citi are under pressure from large investors to pull back from financing new coal power plants to meet climate targets.