The bullish market has continued into August with the key Winter ’21 gas and power season still extremely high. The key driver remains the same – a severe lack of gas volume, with few LNG cargoes coming to Europe, storage levels still well below seasonal norms and crucially uncertainty about Russian flows to Western Europe. There has also been more gas-fired generation than is typical due to very low renewable output (although wind speeds have picked up in the last week or so, 2021 has been a very poor year for wind generation). With the gas price so high, there has been more use of coal, which in turn boosts the cost of carbon emissions.

As has been previously discussed, the cost of LNG has spiked on Asian demand as the Chinese in particular recovers post-Covid. Chinese coal demand is also up for the same reason. We may see some reversal here as there is an indication that the Delta variant is increasing in China, with associated lockdowns more likely. A slowing of the Chinese economy may ease demand and thus prices. It should also be noted that the US seems to be making a concerted effort to reduce the oil price to ensure this does not compromise the global recovery post-Covid. Should oil prices drop, then there may be the tendency for a fall in the wider energy complex.

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