The rising tension between the US and North Korea has been disrupting energy markets over the last few months. The US called for a ban on oil exports to the country, as a result of Kim Jong Un’s missile testing and threats to reach the US and other countries.
Oil rose by 3.6% in West Texas in pursuit of Hurricane Harvey hitting the state earlier this month, the biggest intraday gain since 25th of July. The hurricane, which had peak accumulations of 1,318mm, is the wettest tropical cyclone on record in the contiguous United States.
The first gas has been extracted from new gas fields, located just off the coast of the Shetland Islands. The two fields, named Edradour and Glenlivet are estimated to provide around 1.9 million barrels of oil and gas equivalent in 2018. This comes at a time when gas supply in the UK is below normal as the largest offshore storage site Rough is closed, leaving only cushion gas to be withdrawn over the next few years.
The Cygnus gas development has been under construction for some years now, however the first gas has been drawn and delivered to the UK this week, marking a significant achievement for UK gas. The gas has been transported the Norfolk, across the North Sea, arriving at the Bacton gas terminal, ready for UK supply.
The first full scale floating wind farm is being implemented off the coast of Scotland, which is made up of five turbines in total, and measuring 253 meters in height. The small wind farm is anticipated to generate 30MW of electricity, which is enough to supply 20,000 UK homes. The wind farm will be fully operational by October this year, if all goes to plan.
The department for Business Energy & Industrial Strategy has delayed the implementation of the Energy Intensive Industries (EII) exemption scheme once again, after the April 2017 expected start date was not met. The changes in Government, and discussion with the European Commission have caused the delay in enforcing the new legislation, however a new start date has been proposed for the 1st January 2018. This means that the BEIS will be required to have the new calculations, etc published and ready by the end of October, which has led many to believe the start date will be pushed back once again.
Construction on Hinkley Point C nuclear power station has only recently begun, however it has already been announced that costs will increase by around £1.5 billion, with a potential for a 15 month delay for completion at site. Hinkley Point C has caused much controversy over the last 10 years, and as such the news is quite unwelcome. Originally, the power station was to be powering the UK by this upcoming Christmas, however after recent announcements, power generation will not be taking place for another 10 years.
Centrica Storage Ltd (CSL) announced in June 2017 that their largest offshore gas storage facility ‘Rough’ would be permanently closed, after experiencing a year of issues while under repair and maintenance. The aging facility has been incapable of performing injection activity since June 2016, and as a result has not managed to store much gas, while withdrawals have been significantly low. CSL confirmed that the facility was no longer economic to run due to the extent and cost of repairs required.
Recent statistics from the department of Business Energy & Industrial Strategy have shown a rapid decline in the consumption of coal in the UK. Furthermore, on a global scale, the dependence on coal fired power has dropped over the last two years. This looks set to continue, as the UK announced plans to close all coal power stations by 2025. The new Government could change things, however for now this plan of action still remains.
The UK gas system is currently under some strain as Centrica Storage Ltd announced that their largest gas storage site, Rough, would be offline until April 2018. This was announced at the beginning of 2017, and since then, the facility has been withdrawing gas into the UK system and is now only 5% full. Injections into storage will be unavailable until April 2018, and so very little gas remains at the facility for next winter. Rough generally makes up around 70% of UK winter supply. In the absence of Rough, the UK has been heavily dependent on imported gas from Norway, as well as Liquefied Natural Gas from around the world.
On Friday 26th May 2017, the UK record level of solar generation was beaten as generation crept up to as high as 8.7GW at midday. The previous record high was noted only weeks before on 10th May at 8.48GW. This news shows how the UK has benefitted from its recent transition into the renewable sphere through funding into the Feed in Tariff, Renewable Obligation and Contracts for Difference schemes.
The upcoming UK general election is causing rifts in the energy industry. Political parties have differing agendas covering subjects from energy price plans and caps, to encouraging and discouraging renewable improvements and investments in the UK. There seems to be a lot of confusion about the latter at the minute. While Brexit is a huge concern, there is some uncertainty around whether the UK will maintain EU legislation regarding renewable, and low carbon schemes for the UK, or whether everything will be scrapped.
UK electricity contracts and tariffs are subjected to a lot of extra non-commodity costs. So much so that the build-up of a business electricity bill is ~45% commodity cost, and ~55% non-commodity cost. One of the largest non-commodity costs on power bills is the RO (Renewable Obligation) tax. This has been in place since 2012, and has moved the UK power network to include a mix of renewable, green energy sources. It has been announced that the RO scheme will now be closed, despite its general success.
Centrica Storage Ltd, owner of the UK’s largest gas storage site have announced its long term closure for further maintenance. The facility has been offline since June 2016 for gas injections into storage, and its restart has been delayed multiple times. The facility is able to supply 70% of the UK’s winter demand, however this is no longer the case.
Project Nexus is a huge industry change, and houses a multitude of different amendments to the current UK energy market, etc. From June 2017 there will be a huge change to the UK gas system, whereby Xoserve will be updating the central gas system for the UK. It is the biggest change since it's de-privatisation in the late 1990's. the changes are being driven by Ofgem, which means that this is a mandatory update.
Oil has taken a huge hit this week, with prices dropping as low as $50/bbl. This is despite OPEC’s efforts and plans to get the price of oil back up to $70/bbl by agreeing to cut production from 1st January 2017 for six months. It is now becoming apparent that this is not feasible in the time scales agreed. Plus the fact that US oil rigs are on the rise, crude stockpiles are increasing, and more and more shale oil is being drilled under Trumps Presidency. America’s production activity is totally counteracting everything OPEC have attempted to put into place. And now oils is trading at 4 month lows.
A huge innovation in renewable energy has come about in an attempt to reduce emissions from great ocean tankers. Huge cylinders have been innovated to increased wind power efficiency, no matter which direction it is flowing in, in an attempt to reduce costs and carbon emissions. Furthermore it will lessen the dependence on fossil fuels. Reports suggest that implementing this technology can provide savings on fuel consumption by 7-10%. The technology will be ready to power ships in 2018, and analysis can be conducted from then.
There has been much speculation regarding the future of Liquefied Natural Gas arriving at UK shores as stocks have been depleting dramatically over the last year. Many have anticipated the arrival of American LNG tankers in the UK, especially after Trump became the new President in 2016. President Trump believes America should be energy independent from the rest of the world. He also believes that there are billions of Dollars’ worth of untouched shale gas and oil that can supply America and can be sold off to the rest of the world improving the economy. Many believe that 2017 will be the year that this source of LNG will flood the UK gas market.
The UK’s power supply is made up from a variety of sources, including Coal, Nuclear, Gas and a combination of renewables such as Wind power, Solar, Anaerobic Digestion, Biomass, etc. However, a multitude of issues are coming into play as the Government has planned to phase out Coal power by 2025, and Brexit could potentially mean the UK can scrap renewable targets and agreements set out by the EU. All of this thrown into the mix means that the future of UK power is not quite set in stone, and supply sources could vary in terms of their contribution to the generation stack.
Further Capacity Market auctions took place last week for investment in securing electricity supply for future winter seasons in the UK. The Capacity Market auctions are part of the EMR scheme, in which companies will bid for funding for future capacity projects. In 2016, the auctions ended in a lot of funding given to battery and storage projects. This year reveals a different picture for securing future electricity supply and storage.
Now that the UK has a slightly clearer picture of Brexit after Theresa May’s speech, and the following Supreme Court Ruling last week, the GBP has increased and the markets have seen a downward turn. The premiums being built into market prices are beginning to drop, so what does this mean for 2017? All market intelligence seems to point towards another volatile year as seen in the last six months of 2016.
OPEC and non-OPEC members met this weekend to review the agreement to cut oil production this year, by 1.2 million barrels per day. Eleven out of thirteen OPEC countries, and eleven non-OPEC countries are involved in the production cuts which have taken effect from 1st January 2017 and will continue to be in place for the first half of the year. However with recent increases in US shale oil production, what does this mean for the 1.2 million barrel per day cut, and the global oversupply in the market?
Prime Minister Theresa May is due to give a speech on her chosen Brexit strategy this week, which is causing havoc in the UK energy markets, and more notably is causing much fluctuation in the value of the Pound. Last week May’s speech had outlined the elements of a so-called ‘Hard-Brexit’, despite trying to discourage the label as ‘hard’. Newspapers and articles making statements about harsh-Brexit policies are causing the Pound to drop in value, however many have argued that a clearer picture on Brexit would have prevented any dramatic speculation earlier on. So far, very little about the UK’s exit from the European Union has been announced to the very nation that made the decision.
Dutch Government officials congregated on Thursday 5th January to discuss the future of Groningen field’s production. This is being reviewed due to concern from the local residents. Groningen Field is confined to the surrounding area, which is supposedly being damaged by minor earthquakes and tremors as a result of drilling for gas in the field.
In December 2016 fracking in Yorkshire was approved to take place in Kirby Misperton. Prior to this, fracking had also been approved in Nottinghamshire and Lancashire, despite heavy opposition. Fracking is a highly contentious issue within the UK, therefore the approval highlights the move towards an increasingly diverse energy system.
Ofgem is introducing a new measure to ensure that half hourly supplies that exceed the assigned available capacity will pay significantly more. DCP 161 is a change to the DCUSA (Distribution Connection and Use of System Agreement) that will introduce Excess Capacity penalties for half hourly electricity supplies. The change is being introduced from 1st April 2018 to recover the additional costs that DNOs (Distribution Network Operators) can incur when customers exceed their available capacity levels.
Last week auctions for the capacity market scheme took place in an attempt to secure the future of the UK’s electricity supply. The Government has decided to close all coal power stations by 2025, cutting the UK’s power supply dramatically. Therefore there is a need to secure power supply for the future, from a variety of sources to shift dependence from coal power. The majority of bidding ended in funding for storage facilities across the UK, and Demand Side Response schemes for delivery in the early 2020’s.
On the 10th December OPEC and non-OPEC countries met in Vienna to discuss the recent deal on oil production cuts made by most members of the Organisation of Petroleum Exporting Countries at the end of November. Overall, OPEC are aiming to cut production by 1.2 million barrels per day. The agreement ended in Saudi Arabia taking the bulk of the cut, and other OPEC countries following suit, with the addition of Russia as a non-OPEC country who agreed to cut production by 300,000 barrels per day. However it was made very clear that Russia would only participate as long as other non OPEC, major oil producers would also take part in reducing the saturated market.
The recent struggles in the French power market have had a huge impact on both UK power supply and power prices this winter. With a multitude of nuclear power reactors down for urgent maintenance and damage to the IFA interconnector, both France and the UK are experiencing a tight system, where the gap between supply and demand is growing smaller as we continue into darker and colder winter months. With this in mind, what can we expect for the future of energy supply to the UK?
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