The outlook for the UK ETS this week is neutral. We may be in holding mode, waiting to see how flows of gas from Russia are affected. The threat to gas supplies implies similar risk of industrial shutdowns and a flow of money out of UKAs and into gas and coal positions to what we see in the EU ETS. Gazprombank can facilitate payments by converting other currencies to rubles, but it remains to be seen what will happen by 15-20 April, when payments for natural gas deliveries are likely due. The British government has declared that it won’t pay for gas using rubles, and Russia has said they won’t give the gas away for free.

  • Windy weather and relatively milder temperatures are reducing fossil fuel generation to 31% of UK generation at the time of writing, compared with 48% share for fossil fuels over the last week. Heating demand isn’t likely to be much lower as it is still quite cold.
  • The UK is relatively less reliant on Russian gas than continental Europe, though NBP British gas prices are influenced by TTF gas prices. Industry shutdowns due to high energy prices remain a risk.
  • There is an auction of UKAs this week – we think a good amount of demand still comes from utilities swapping their EUA hedges to UKAs, so we may see UKAs drawn towards the EUA price on Wednesday afternoon, to some extent.
  • UKAs are showing a ‘pennant’ formation on the price chart. Lower highs and support at ~£74.00 might be suggestive of a coming breakout. It’s hard to say in which direction a breakout might come – the price chart could be interpreted to show both bullish and bearish formations. See chart 3.
  • The UK government intends to substantially reduce UKA supplies, tightening the market. Contact us for an explanation of longer term market drivers and what the UK government’s changes imply for UKA prices through the 2020s.

UK ETS Outlook: neutral

Indicative UKA price: £74.20

YTD average UKA price: £78.78

MTD average UKA price: £74.20

March average UKA price: £75.84

1. UKA Dec22 Price Chart 2. Snapshot of UK energy generation 4/4 3. Pennant formation on UKA Dec22 Daily chart


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