December 2021 Markets Update

After a calm end to October, UK gas prices rallied again throughout November due to below-average temperatures, unfulfilled Russian deliveries into Europe and setbacks for the Nord Stream 2 completion date.
UK gas storage started the month at 100% capacity and with Europe lagging around 70%, this enabled more flows to be exported onto the continent. However, due to the increased demand, Europe’s storage capacity has not improved and concerns remain whether it will cover winter’s requirements.
Forecasts of cooler weather were realised in mid-November, with temperatures dropping to 4-5 degrees below average and significantly increasing demand requirements. This saw the markets continue a bullish trend which peaked on the 18^th.
Despite previously advising that they would be willing to increase gas supplies into Europe, Russia continued to resist opportunities to follow through and book additional capacities, right up until the end of the month. This exacerbated the anxiety already created by the cooler temperatures and supporting prices further.
There were also major setbacks in the Nord Stream 2 completion date, with Germany’s grid operator temporarily suspending its certification process, due to issues with pipeline structure under German Law.
However, following the summer drought, a wave of LNG tankers has arrived again in Europe during November, with 15 cargos arriving in the UK alone. This increase has helped to ease capacity and supply levels.

Electricity prices continue to follow the gas markets and have also been bullish throughout November, with gas-to-power generation averaging between 30-40% of the total mix.
Increased wind strength has brought a greater volume of renewable capacity online, however, this has done little to counter the effects of a rising gas market and below-average temperatures.
No major issues with supply throughout November, with steady flows through the European grid interconnectors.
Both UK and EU Carbon markets have recovered from losses in October, both reaching above 70 £/€ per tonne of Carbon, respectively – this being a new record high for the EU market.

At the World Petroleum Congress in Texas this week, the Chief Executive of Aramco (Saudi Arabian Oil Company) warned against a rushed transition into renewable energy as he feared it would cause spiralling inflation and social unrest.
In November, OPEC’s crude oil production increased by 220,000 bpd to 27.74 million bpd however fell short of the 254,000 bpd they should be implementing.
The operator of the UK’s largest oil refinery, Esso in Fawley, Hampshire, has was fined £500,000 for health and safety breaches after a leak of liquid petroleum gas (LPG) in 2015.
The £3.2m North Sea deal between United Oil & Gas and Quattro Energy has been postponed to 28 February to give time for all deal conditions to be met. In an additional extension, United will sell its Central North Sea licences to Quattro.

China is re-thinking its position on coal after its recent disastrous blackout. A senior consultant with China Electric Power Planning & Engineering Institute, a government-backed think tank, stated they would not get rid of coal-fired power immediately but are targeting shortening its duration to meet their climate pledge. The republic accounts for 40% of annual CO2 emissions.
AIA Group Ltd. has sold off up to $10 billion of investments in coal mining and coal-fired power businesses as pressure grows on financial firms to cut ties with the sector.
While the U.S. Administration is pushing its green energy agenda and wants to decarbonize the power grid by 2035, coal is making a comeback this year as high natural gas prices incentivize more coal use in electricity generation.