June Markets Update

Gas

• May saw the UK gas market finally settle close to pre-Ukraine Invasion levels, however it remains volatile due to a swinging balance between increasing geopolitical sanctions and improving outlook for short-term supply.
• Anxiety remains in the European gas market as countries continue to navigate their way around both EU and Russian sanctions, which seem to be announced on a weekly basis. The main issues appear to be around Russia’s demand for payment of their hydrocarbons in roubles, while the EU tries to develop targets for reducing its dependence on Russian supplies.
• European gas storage capacity continues its slow recovery, ending the month close to the 5-year average level and helping to provide a positive outlook for this year’s winter period.
• The UK system remains in good standing thanks to several month’s of high LNG deliveries and stable flows from Norway allowing its storage capacity levels to recover significantly faster than historical years, ending May at around 92% (compared to the 5 year average of 31%).
• The strong position has enabled it to continue to be exporter of gas into Europe at near capacity levels, while also allowing additional drawdowns to be made to help balance the system during the upcoming maintenance season.

Electricity

• After settling in April, the UK electricity market has largely remained stable throughout May, with any volatility being linked to spikes in the gas markets.
• Low wind strength limited renewable capacity available to the UK system, which strengthened its dependence on gas for power generation and the vulnerabilities of its market. However, fortunately, positive fundamentals such as above average temperatures and limited system issues helped to reduce any significant swings which the market has experienced since the start of the year.
• On the back of April’s bullish trend, the EU carbon price peaked during the first week of May hitting a high of €91.20 per tonne, before retreating again to close the month where it started.
• This peak has been linked to the increasing level of coal to power within the EU system as countries look for alternatives energy and avoid gas, however the EU have indicated that they will consider creating additional ETS certificates to help ease future price surges.