The average price of electricity in Estonia last week was €115.90 per megawatt-hour, up by €35.20 per megawatt-hour compared with the previous week. The cheapest hour was on Sunday, January 15 from 11 p.m. to midnight at €35.20 per megawatt-hour and the most expensive on Friday, January 20 from 8-9 a.m. at €229.42 per megawatt-hour, according to Central European Time as reported by Nord Pool.

Colder weather and slightly calmer wind conditions in the second half of the week affected prices throughout the region.

The average price of natural gas for the week, meanwhile, was €61 per megawatt-hour, down by €7 per megawatt-hour compared with the previous week.

Last Monday, the price of natural gas dropped to €56 per megawatt-hour for the first time since September 2021. The price rose again during the week, however, due to forecasts for cooler and drier weather. Last week also saw a price correction due to supply uncertainty this year.

Nonetheless, it is noteworthy that the price of gas futures on the Dutch Title Transfer Facility (TTF) market have been in a downward trend for seven weeks in a row, causing European LNG prices to fall with them.

The latest weather forecasts for Europe are calling for warmer weather with plenty of wind in early February, and possible frost predicted again in the second half of next month. Warmer weather means higher hydropower production for Nordic countries, which will bring down electricity prices next month.

A total of 45 LNG carriers arrived in Europe last week, and another 43 should be on their way to Europe this week. At this rate, it can be assumed that a record amount of LNG will be delivered to Europe in January. The latest record was in December, when a total of 18 billion cubic meters of gas was delivered to Europe by sea.

Currently, European gas storage levels are at 78 percent — 35 percent higher than a year prior thanks to major demand reduction efforts. These levels are nonetheless also on a downward trend at the moment, declining three percentage points a week due to colder weather.

Russia is still exporting gas to Europe via a pipeline running through Ukraine, with volumes falling by 23 percent on Thursday and Friday. Although the price of gas on the exchange jolted upward and caused some anxiety on the market Thursday, it appeared on Friday that the decrease in supplies may be due to Europe's reduced need to buy gas from Gazprom. The latter has not explained this decrease in volumes, but according to analysts, the exchange price has probably fallen below the level of Russian long-term contracts.

Before the end of 2022, nearly 40 million cubic meters of gas flowed through the pipeline to Europe each day. On January 6, however, gas volumes dropped to 30 million, and on Thursday to less than 20 million cubic meters a day.

Due mainly to maintenance work, pipeline deliveries of the continent's largest gas producer, Norway, have steadily declined since the record high on January 9, falling from 343 million to 323 million cubic meters of gas at the end of the week last week.

The Freeport LNG export terminal in Texas, which has been offline since an explosion last June, will not be starting operations again until March. Although the port does not directly affect European livelihoods, it does make competition on the global market more intense, as disruptions have also hit production in Nigeria and Australia, while Asian consumption is forecast to increase.

According to a report by BloombergNEF, prices in Asia have not yet risen enough to entice LNG carriers to leave Europe. Although China's LNG demand has remained depressed for a long time due to COVID-19 related restrictions, BloombergNEF forecasts that China will unseat Japan and return to its position as world's largest LNG importer this year.

Market still very sensitive to changes

Although various parties from the French gas network operator to the German chancellor have assessed Europe's performance as "better than expected," the market is very sensitive to changes.

As a result, the market price of natural gas immediately turned upward following the news of a decrease in Russian flows, and the cooler weather that has reached Central Europe is predicted to last at least until the middle of next week.

Despite these circumstances, Europe is more and more likely to face spring with significantly more gas than usual. According to a recent BloombergNEF report, the European storage load will not fall below 50 percent by the end of winter, which should be enough to replenish stocks for next winter.

Achieving this goal is important because the worst of the enery crisis may not be over. Looking ahead to next winter, Europe's LNG receiving capacity is not yet sufficient to completely replace Russian gas. Thus it is still necessary to keep Europe's gas consumption under control.

Qatar, one of the world's largest LNG exporters, is predicting high volatility in the gas markets for several more years, as there won't be enough added production to cover growing demand. Qatar is investing $45 billion to increase its own production capacity by 60 percent, but this development won't enter operation until 2027.

Several countries optimistic

Reactors that had been undergoing repairs at French nuclear power plants have since come back online, and the French transmission system operator that had previously been warning of power outages announced last week that the risk of outages has essentially disappeared; in the event of a possible shortage, the deficit would average up to 5 percent of consumption, which the operator has enough reserves to cover. The threat of a gas shortage has essentially passed as well.

Italy, too, has announced that their reserves are sufficient to cope with next winter.

Like Estonia, Germany is currently mapping the potential of its offshore wind farms. According to the results presented last Friday, more suitable locations for wind energy production have been found.

According to the report, Germany could build up to 37 gigawatts of wind farms by 2030 and up to 50 gigawatts by 2035. The country's national goal for 2045 is to have up to 70 gigawatts of offshore wind capacity, hopefully coupled with 1 gigawatt of green hydrogen electrolysis capacity.

They are also more optimistic about the state of the European economy. Inflation in Great Britain fell for the second month in a row, and German Chancellor Olaf Scholz expressed his belief that an economic recession could be avoided this year. The EU is seeing a chance to avoid an economic recession thanks to the drop in natural gas prices and the arrival of European recovery funds in the economy.

Colder weather translates to higher CO2 prices

OPEC+'s decision to significantly reduce production, which sparked significant discussion at the start of winter, has nonetheless not led to either a deficit or a particular price increase. According to an International Energy Agency (IEA) report, production will exceed 1 million barrels a day in the first quarter of 2023.

The EU sanctioned coal imports from Russia in spring already, and a significant share of its replacement has been found in South Africa, from which deliveries to Europe increased sixfold last year.

The price of CO2 increased from €80.20 per ton last week to €81.90 per ton. This rise was influenced primarily by the increase in the output of fossil fuel-based power plants due to recent colder weather.

The region's nuclear power output last week, meanwhile, totaled 8.58 gigawatts. The 4th unit of Sweden's Ringhals Nuclear Power Plant (NPP) will remain under maintenance through February 23. Maintenance work on Olkiluoto 3 (OL3), a reactor at Olkiluoto NPP, will continue through February 5. Some restrictions on production will apply to OL3 until the beginning of March, after which regular production with a capacity of 1,600 megawatts can begin.

Eesti Energia's power plants in Narva were on the energy market with 460 megawatts last week, and all steerable production facilities managed by the Estonian state-owned energy company are available for the market this week at either full or partial capacity.

The price of electricity on the power exchanged is determined for each hour depending on production capacity and consumer demand for that prticular hour, as well as by transmission limitations between countries.

This market overview was drawn up by Eesti Energia according to the best current knowledge, with provided information based on public data. Eesti Energia's market overview is presented as informative material and not as a promise, proposal or official forecast by Eesti Energia.

Due to rapid changes in electricity market regulation, the market overview or the information contained therein are not final and may not correspond to future situations.

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