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Winter energy outlook: Is 2023 the calm before the storm?

When it comes to natural gas and power, 2023 has been a year of stable supply and pricing. But will it last? To help our customers anticipate what may be coming next, our energy experts shared their insights on the factors impacting supply and demand in EMEA, North America, and APAC in our Get Kinected Energy Market Outlook for the end of 2023 and early 2024. Before you plan your energy budget for 2024, you’ll want to read the highlights from each of these one-hour webinars.

Under the weather
Globally, extreme weather is impacting energy demand. And while long-term weather forecasts are often wrong, there may be record temperatures over the next few months that could drive volatility in energy markets. You should not base your risk management strategy on weather forecasts, but an awareness of the impact of extreme conditions can help you anticipate and plan for worst-case scenarios.

Winter wondering
Prices for natural gas and power have remained relatively low and stable in 2023 across Europe and the UK. And although there were record-high temperatures this summer, strong renewable energy delivery helped keep prices in check. Other important factors included slow economic growth, limited industrial demand, and changes in consumer behavior.

There is less certainty around both demand and supply going into winter. Last winter was mild, and storage levels were able to recover after the volatility of 2022. The same this year could have a similar result.

If Europe and the UK experience a cold winter instead, increased demand would deplete supply. Both spring and summer prices could be higher from the demand of restocking those stores. Contracts for the coming winter are currently trading at a substantial premium since the supply situation is still precarious.

There’s a lack of flexibility in Europe’s pipeline supply, and the grid in most places is not equipped to store renewable energy. This leaves liquid natural gas (LNG) imports as the only place where some flex can occur. Given the demand for LNG globally, prices could increase significantly as stores are depleted.

North America
Strong production…for now
Natural gas and power pricing has settled down considerably in 2023. Even though parts of the U.S. saw record demand and extreme heat this summer, strong U.S. production has helped to keep a lid on prices. At the same time, storage inventories have grown at a healthy rate this season and are expected to reach near or above the top of the five-year range as we move into the winter.

Weather and production will determine demand and volatility this winter. That risk is currently reflected in future prices.

It would be a mistake to assume that the stable supply and pricing we’ve seen for gas and power in 2023 is the new norm. While production is currently robust, exploration for new natural gas wells has fallen since May. Since there is an 8–10-month lag in production, fewer wells being drilled today will impact output at some point.

On the demand side, several factors are converging. As coal capacity shrinks and wind and solar become more expensive due to increasing demand, natural gas demand will continue to rise. Given the surging industrial gas demand globally and the U.S.’s expanding LNG exports, it will become increasingly difficult for natural gas production to keep up with demand.

Weathering demand
Mild weather and large industrial demand destruction have allowed prices to fall and markets to settle, leaving wholesale electricity prices across most of APAC well down from 2022 levels. Current pricing is now slightly optimistic because of positive spot outcomes in the past few months.

Moving forward, prices will be driven by volatility and electricity markets. If there are open positions for electricity procurement, you will want to tackle them before the heat and volatility reach the electricity market.

Australian demand is very weather dependent. As we move into summer, average demand is likely to be higher than last year because of much higher temperatures. But while increased distributed solar/PV output and warm weather kept prices in check this winter, reduced wind generation in high temperatures will mean less of this summer’s demand will be offset by renewable energy.

Prepare for what’s next
With so many variables impacting energy availability and pricing, it can be difficult to budget for the power that runs your business. A partner that knows global energy markets is an essential part of effective price risk management.

World Kinect’s energy experts can help you better understand global energy market dynamics and help
protect your organization against market volatility. Our one-hour energy events are reserved for
customers, but you can view our most recent event at no cost even if you are not yet partnering with
World Kinect. Visit us for more details.