Weekly News Review - 13th October 2023
Oil and gas prices rise following Hamas attack on Israel
Global oil and gas prices have risen this week following the escalation of the Israel-Hamas conflict. Tensions rose after Palestinian militant group Hamas launched an unprecedented attack on Israel on Saturday in the biggest escalation between the two sides for decades. In response Israel launched a series of air strikes on the Gaza Strip and are preparing a ground offensive.
The benchmark month-ahead European gas price has climbed to its highest level since late February, closing at €53.29/MWh. UK gas prices also gained, with the day-ahead price at 121p/th and the month-ahead contract at 133p/th, the highest level for several months. Brent crude oil prices increased by $2.25/bbl to $86.83, while US prices also rose.
On Monday, Israel’s Ministry of Energy shut operations at the Tamar natural gas platform in the Mediterranean Sea over security concerns. The Chevron-owned platform is within range of rocket fire from the Gaza Strip. Israel is not a major oil producer and no major oil infrastructure runs close to the Gaza Strip. However, there are concerns that about a fifth of global supply would be blocked if passage through the Strait of Hormuz, a vital oil trading route, is disrupted.
The International Energy Agency (IEA) said that oil markets are likely to remain on edge as the conflict develops. In their latest report the IEA said: “The Middle East conflict is fraught with uncertainty and events are fast developing. Against a backdrop of tightly balanced oil markets anticipated by the IEA for some time, the international community will remain laser focused on risks to the region’s oil flows.”
Energy analyst Saul Kavonic told the BBC that global oil prices have risen “due to the prospect of a wider conflagration that could spread to nearby major oil-producing nations such as Iran and Saudi Arabia”. He added: “If the conflict envelops Iran, which has been accused of supporting the Hamas attacks, up to 3% of global oil supply is at risk.”
However, Saudi Arabia has the potential to increase oil production by around 3 million barrels a day if global supply is cut elsewhere, which amounts to almost 3% of global production. On Wednesday, Russia and Saudi Arabia announced that they will “most likely” maintain their oil production cuts despite concerns that the conflict between Israel and Hamas could drive crude prices to $100 a barrel.
Finland investigates potential sabotage to Baltic gas pipeline
The Finnish government confirmed on Tuesday that damage to a subsea gas pipeline and a telecommunications cable under the Baltic Sea may have been a deliberate act. The 77km Baltic-connector gas pipeline connecting Finland and Estonia was shut early on Sunday after concerns that gas was leaking from a hole.
Finnish President Sauli Niinisto said in a statement: “It is likely that damage to both the gas pipeline and the communication cable is the result of outside activity. The cause of the damage is not yet clear, the investigation continues in cooperation between Finland and Estonia.”
Opened in 2020, the Baltic-connector is used to send gas between Estonia and Finland, depending on demand levels in each country. Natural gas accounts for about 5% of Finland’s energy consumption and the pipeline has been Finland’s only natural gas import channel since Russian imports were halted in May last year. Norway’s seismological institute, Norsar, said it had detected a “probable explosion” along Finland’s Baltic Sea coast at 01:20 on Sunday.
UK gas prices jumped 15% to 125.4p per therm on Tuesday following news of the damaged pipeline. Prices were already rising after Israel closed one of its largest gas fields, Tamar, in the Mediterranean Sea, in response to the recent aggression by Hamas.
Head of gas analytics at ICIS, Tom Marzec-Manser, said: “This shouldn’t have a major impact on the fundamentals of Europe’s gas markets, but the strong market reaction highlights that there is still a lot of volatility and nervousness around.”
Ursula von der Leyen, head of the European Commission, condemned the attack, saying: “Our pipelines and underwater cables connect citizens and companies across Europe and to the rest of the world. They are lifelines of financial markets and global trade.” She added: “This is the second time in just over a year that this kind of critical infrastructure is damaged… I strongly condemn any act of deliberate destruction of critical infrastructure.”
World’s largest offshore wind farm produces power for the first time
The world’s largest offshore wind farm under construction, Dogger Bank, has started producing electricity for the first time. The wind farm is being constructed by SSE around 130km off the coast of Yorkshire and includes three 1.2GW stages known as Dogger Bank A, B and C. The first turbine at Dogger Bank A began exporting electricity to the grid on Saturday.
The first stage of the project is expected to be completed next summer with Dogger Bank B and C forecast to come online in 2025 and 2026, respectively. Once completed Dogger Bank will comprise of 277 ground-breaking 13MW Haliade-X turbines which have a blade length of 107m. This gives a world leading total capacity of 3.6GW which will be capable of producing enough clean energy to power the equivalent of six million homes annually.
Prime Minister Rishi Sunak said: “Offshore wind is critical to generating renewable, efficient energy that can power British homes from British seas. I’m proud that this country is already a world leader in reaching Net Zero by 2050, and by doubling down on the new green industries of the future, we’ll get there in a way that’s both pragmatic and ambitious.”
Alistair Phillips-Davies, Chief Executive of SSE, said: “There’s been lots of talk about the need to build home-grown energy supplies, but we are taking action on a massive scale. Dogger Bank will provide a significant boost to UK energy security, affordability and leadership in tackling climate change. This is exactly how we should be responding to the energy crisis.”
“But it is also a landmark moment for the global offshore wind industry, with Dogger Bank demonstrating just what can be achieved when policymakers, investors, industry, and communities work together to achieve something truly remarkable.”
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