Russia, China and Siberia-2

Last Friday, natural gas prices at the National Balancing Point (NBP) saw a decline. This down to the increase in wind generation. The biggest losses were seen in the Summer 2026 contract- dropping by 2.8p/therm (0.1p/kWh) compared with its previous close.

What does this mean?

National Grid data showed that wind output reached 10.3GW during the gas-day, contributing to around 40% of Britain’s power mix. The boost in wind generation led to a sharp decline in gas-fired demand, which fell by 52% to only 2.8GW during that same period.

Centrica has also announced their plans to double the capacity of their 50 MW Brigg gas-fired peaking plant. The expansion work aims to provide support during high demand periods or when renewable energy output is low. They expect to complete the work in around 9 months, and it will operate primarily during peak hours once completed.

Recently, Germany and Czechia (previously Czech Republic) have been advocating for the EU to properly discuss methods to stop Russian imports of energy. Despite the massive reduction of energy imports from Russia, the EU sourced 15% of its gas from Russia last year as well as 15.6 million metric tonnes of LNG. This marks a 38% increase compared with 2021- a year before Russia invaded Ukraine.

This April, EU energy consumption dropped to its lowest level in over seven years. The warm and wet weather along with reduced industrial usage have contributed to this level. On average, the temperature in April was about 1.5°C above the seasonal norm. Even though industrial demand showed a slight increase compared to last year, it still remains below levels seen in previous years.

Also, developments with Russia and China over the Siberia-2 pipeline have come to a halt after both countries can’t seem to reach an agreement on the deal. It is reported that China did not meet Russia’s asking price for gas supply. However, Russian Deputy Prime Minister Novak said that last month, Russia and China expect to come to an agreement “in the near future” on the Power of the Siberia-2 gas pipeline.

Summary

This Monday, energy prices spiked, as a result of unplanned maintenance in Norway’s Nyhamna processing facility. Another potential factor could be the increased tensions between countries. For example, Germany and Czechia pushing for the EU to stop importing gas from Russia, and Russia and China disagreeing on the Siberia-2 pipeline deal. These disruptions have caused the new July 2024 front-month contract to surge by 8p/therm (0.27/kWh) above its previous settlement.