FORTNIGHTLY OVERVIEW
The big drop in global energy investment last year , reported mid-month by the International Energy Agency , is unlikely to be offset by a rise this year . Many expensive plans will slide further into the future as their sponsors can only hope that the price will eventually recover or costs slide yet further .
In many regions , producers ’ talk of a cyclical market sounds like whistling in the dark : past recessions have not been accompanied by the kinds of technological breakthroughs that have now become affordable in other forms of energy .
For example , Germany ’ s E . on and French Engie this month each announced deals to support the UK and French grids respectively . Their battery technology is designed to help grids cope with frequency problems that can be caused by renewable energy , further questioning the shot-gun marriage of intermittency and gas-fired power .
Thanks also to falling demand , energy is becoming cheaper – and without becoming less sustainable – and this is forcing a change on that once undisputed king of the market , LNG . The old ways of doing business are nearing an end , according to a new book by the Oxford Institute of Energy Studies and Kapsarc published early this month .
The future is all about short term optimisation and the lowest-possiblecost routes to markets that in turn must become deeper , and more liquid in order to support spot trade . Adapt or die , is the sub-text : gas is only one form of energy and those oil-indexed contracts are looking vulnerable .
Earlier this month the $ 54bn Gorgon LNG plant joint venture engineering partners Technip and Wood Group
UK peak , base power prices 2016 (£/ MWh ) concluded 11 years work on the longdelayed giant project , now finally up and running : it is hard to imagine the groundbreaking ceremony on another one like that , especially in the context of Sabine Pass , whose second train was deemed complete mid-September .
This trend towards shorter , smaller and leaner is familiar in European pipeline trade : several types of pricing model – term , spot and auctions – are in collision somewhere in central Europe with farflung repercussions . Engie has joined Eni in an acrimonioius battle with GasTerra , seeking to unpick terms that seemed so reasonable – all things being equal – less than a decade ago .
But despite the apparently boundless supply of cheap gas the UK government decided that the French-Chinese Hinkley Point C nuclear power project was good to go .
The long-term power offtake price , the security threat posed by the involvement of a Chinese state-owned company and the untested technology were more than offset by the interests of political ties post-Brexit , the need for low-carbon energy with certain output , and the UK ’ s growing supply shortage . The agreement had been scrutinised for some years and was ruled acceptable .
The announcement happened to come in a week of exceptional gas-fired power profitability as energy intensive air conditioning units were full on . UK wind generation was low and there was a number of outages affecting power generation or transmission , so that the UK price for some periods shot up by four or five times what it was a few days earlier to £ 160 / MWh on September 14 ( see graph ). Further east , Ukraine managed to shoot itself in the foot with the unexpected ministerial seizure of the controls of
UkrTransGaz . So far this year the omens had been good , with state Naftogaz pushing the government to implement the corporate governance plan . Also newly on offer this year are capacity rights in storage assets ; and contracts with UkrTransGaz for shippers to bring gas across the west of Ukraine to other European grids .
This will knit the country more tightly into trade with western companies – it has already worked on local versions of the EU network codes and entered into operational balancing agreements with neighbouring grid operators , both unthinkable developments until very recently – but European shippers will want certainty that these contracts will be honoured . In the past , gas has gone missing in Ukraine . Earlier in the month , the EU energy union commissioner Maros Sefcovic visited Naftogaz in Kiev and the two sides had apparently made much progress especially where Russian gas was concerned : there is no deal in place yet for winter gas and funding is now in doubt .
Russia also made progress with its gas , selling more to Europe than in the same period last year . The maintenance period of Nord Stream 1 saw more gas flowing out of Ukraine , but not enough gas flowing into Ukraine to maintain pipeline pressure .
Owing to pressure differences a Russian cubic metre carries less energy than a standard cubic metre , as this table shows . At the same time , Gazprom ’ s gas production costs rose , according to Mikhail Korchemkin of US consultancy East European Gas Analysis ; but it still remains below $ 1.00 / mn Btu , or a fraction of the Henry Hub-based gas which determines the profitability of US LNG exports .
Source : EPEX Spot