Energy Market Update | 22/02/2022

As a business cost reduction specialist, Great Annual Savings Group (GAS) will provide regular updates on the impacts of geopolitical tensions in Ukraine.

The situation in Eastern Europe is having a major impact on many essential markets, including energy.

This article was written at 13:00.

The Russia/Ukraine border stand-off has been affecting the wholesale gas market for weeks, which had already spiralled out of control in 2021.

Market turbulence throughout 2021 forced almost half of UK energy suppliers out of business in the final quarter of the year.

December 2021 wholesale prices were almost five times January 2021.  Although they dropped in January 2022, they are still more than triple the price of the previous year, whilst power wholesale prices were still more than double January 2021.

Prices pulled & UK generation of power

December 2021 saw suppliers refusing to offer business energy contracts due to the inability to forecast future pricing.

We have seen this begin again today, with several UK suppliers pulling their price books first thing.

The UK imported roughly 87% of its liquified natural gas (LNG) from Qatar, Russia and the US in 2020, which accounted for 36% of the country’s power generation for the year.

As you can see, the UK and Europe are heavily reliant on the amount of gas coming in from Russia, via Ukraine.

Russia and Nord Stream 2

Russia wants to weaken Ukraine’s economy and diversify its exports with the opening of the Nord Stream 2 pipeline directly into Germany via the Baltic Sea this year.

European and US opposition to this development has contributed to Russia limiting its supply into Europe as a result, to force the continent’s hand on opening the pipeline.

This afternoon has seen German Chancellor Olaf Scholz confirm that it will not allow Nord Stream 2 to open as a direct sanction on Russia’s incursion into Ukraine.  This will not have been unexpected to Russian leadership and will undoubtedly be met with the continuation of minimal exports into Europe.

With further sanctions due to be announced this afternoon by the UK government, the ball on energy prices will remain firmly in Russia’s court for the foreseeable.

What this means to businesses

Price volatility will continue for the rest of the year, as had previously been predicted at the start of 2022.

Contracts will become harder to attain for businesses due to suppliers pulling pricing and being unable to hedge or project effectively.

This will leave businesses exposed to a skyrocketing energy market, the impacts of which must be monitored regularly for any business whose contract expires over the next 18 months or is out of contract.

Natural gas prices have risen 4.5% so far today.

Want help?

At Great Annual Savings, we have been advising businesses on the most appropriate courses of action within the energy market throughout the crisis and have helped many avoid this volatile situation.

It is certainly worth speaking to one of our experts on whether your energy procurement strategy is still fit for purpose.

Simply fill out a form (right) to book a call.  We call all form completions within 15 minutes Mon-Fri 08:30am – 5pm and our advice is free.

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