There were 8 contracts traded that were eligible to include in the index calculations this month, but the last of these was on the 6th April, and since then nothing has traded in the OTC market (or at least not that meets the index criteria for size and duration).
The main Index is sitting at 12.2 c/kWh. The main index above has taken a pause in its steep upward trend, which started late in 2020, but in that time the index has increased by almost 60%, a reflection of the steep rise in hedge prices in general, but the futures market in particular.
We don't know why the number of OTC contracts traded has fallen away this month, but it is fair to say that buyers aren't keen to pay these prices if they can avoid it. Buyers have a difficult decision to make: do they buy longer term to average out the contract price, or do they buy shorter term in the expectation of prices falling once Pohokura gas field is back in production in 2022.
Speaking of which, getting Pohokura, our largest gas field, back up to full production, can only happen with intervention using a drilling rig that has to come from Singapore. The problem is one of scaling in an offshore well: the scaling builds up on the inside of the well and eventually restricts gas flow. The rig is requires to remove the scale.
Scaling is generally a function of water entering the well, and chemical that are carried in the water then deposit on the inside of the well. There are methods that can be used to remove scale, but the bigger question is whether the problem well at Pohokura is scaling more because there is less gas, hence allowing more water to enter the well.
Pohokura's reserves were downgraded progressively from 1.017 PJ in 2014 to 548 PJ in 2018, then they rose in 2019 to 714 PJ, but fell again last year to 498 PJ.
What we're wondering is whether the current scaling is a sign that the well is nearer to the end of its useful life than expected? And will this potentially lead to a further large downgrade in reserves? or maybe OMV will drill a new well to tap into additional reserves; if there are any.
For a more indepth view of the Monthly Electricity Contract Index Update, Issue 145 download the pdf below.