| Hi Marine Fuels Team, What happened in the market? The main news last week in European energy markets was the Ukrainian military incursion into the Kursk region of Russia, which created additional fear in natural gas markets already spooked by geopolitical events in the Middle East. Kursk is an important natural gas hub, and specifically a key transit point for gas flowing through the Sudzha pipeline. This is the last pipeline flowing meaningful natural gas volumes to Europe from Russia via Ukraine. As of now, we understand that gas is still flowing, however, the market concern is around interrupted volumes in the short term; the affect has rippled throughout the natural gas curve because of concerns around ability to refill storage ahead of the coming winter should this flow cease. Most market participants would have this flow at zero from January 2025 in their balances, as most think it unlikely that Russia will renew the transit arrangement they have with Ukraine when it expires, as this involves paying Ukraine to ship gas through their territory. In addition, in the natural gas markets there are continued rumours about payment issues between Gazprom and European utilities who continue to buy directly from it, which again add to concerns about interrupted flows. The European warm weather was supposed to normalise a bit sooner than it looks like it will, with hottest days of the year so far today in Paris and London for instance, so the market has rolled the heat forward a bit, supporting prices. Forecast suggests that temperatures will return to normal later this week. In the Atlantic Basin, storm Debbie dumped over a foot of rain on the East Coast of the US, but didn’t impact any hydrocarbon production. A strong tropical waive is on its way across the Atlantic and likely to form a storm, and potentially a strong hurricane, within the next week or so, to be called Ernesto. Current modelling suggests this storm is likely to re-curve, making it a “fish mixer” in the Atlantic basin, but unlikely a threat to the US mainland. If it does develop into a strong hurricane, it is likely that its remnants will be felt in Europe. Last week, the December 2024 EUA futures contract made the weekly low of €67.85 on Monday. From mid-week onward, prices began to noticeably recover, with futures reflecting the headlines in the wider energy market. This upward momentum continued, hitting the weekly high of €71.86 on Friday. The week ended with Friday’s settlement at €70.14.  Source: BloombergPrice & position data December 2024 Futures December 2024 Futures Week 32 3 Months ICE position w/w Change VWAP €70.07 €70.40 Investment Firms -308,32 -13,49 High €71.86 €78.10 Investment Funds -19044 6,434 Low €67.85 €64.24 Commercial Undertakings 251,859 5,549 Average Daily Volume 23,664 25,899 ETS Compliance Firms 73,762 916 Source: Bloomberg Source: Bloomberg, Definitions on ICE, Other emissions news In Emissions, the deadline to comment on the UK Government’s consultation about adding greenhouse gas removals into the UK ETS is the 15th August. Given the change of government since this consultation was announced, it is unclear what impact the consultation might have or whether the new UK administration has a new strategy in mind. A report by Frontier Economics explored the potential benefits of linking the UK and EU systems, suggesting that if the current price gap continued, the UK government could lose between GBP 3.5 and 8 billion between 2025 and 2030. (Source: Frontier Economics) Summer temperatures have surged across the Mediterranean, Eastern Europe, and parts of Western Europe, leading to a 3% month-on-month increase in Europe’s total power demand in July, driven by heightened air conditioning use. Despite a boost in renewable energy generation, this was largely counterbalanced by a 4% decline in hydroelectric output, as producers continued to conserve water supplies. As a result, gas generation stepped in to fill the gap, increasing by 30% month-on-month as of July 30. This shift pushed European power sector emissions up by 10% in July compared to the previous month. However, year-to-date emissions remain 9% lower than in 2023 and are still below the average of the past five years. Looking ahead, BNEF expects European power demand to decrease by around 3% in August due to milder weather conditions. At the same time, output from non-fossil-fuel sources is forecasted to decline by 2%, primarily due to reduced hydro and nuclear generation. Potential cuts to French nuclear output could keep the door open for increased fossil-fuel generation, potentially driving up emissions this month. (Source: BNEF) Questions about the UK or EU ETS? Email us! Wishing you all a good week ahead, Grey Epoch Europe +44 20 7072 3313    |
IN: Decarbonisation
ETS Weekly – Grey epoch – week 32
Posted On
12 August 2024
Contributed by
Emilio Fontana (Grey Epoch)
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