Price Risk Report - 1 April 2018

Last Month Summary

UK gas and electricity prices rose significantly higher during March, as National Grid issued an official gas deficit alert warning that Britain did not have enough gas to meet demand when snowy weather and colder temperatures disrupted supplies.

Official figures also showed that aggregated gas storage levels in northwest Europe (Belgium, France, Germany and the Netherlands) are below 100 TWh, well below levels seen at this time of year over the past three years. This will mean that gas injections into storage will need to be more active during summer months in order to refill stocks in time for next winter.

Gas prices ended the month 7.2% higher at 1.70 p/kWh, with electricity prices 8.2% higher at 5.00 p/kWh.

Brent crude oil prices rose to their highest level in two months, reflecting bullish Saudi plans for production cuts and U.S. threats over the future of Iranian crude exports. As a result, the benchmark Brent crude contract increased 7.4% month-on-month.

Energy Price Outlook

Bearish price drivers   Bullish price drivers
Ø An increase in LNG imports (especially from new U.S. terminals) is expected to support supply during times of higher demand.

Ø Milder weather for UK and Continental Europe forecast for April and the rest of summer.

  Ø Even as temperatures rise, forecasts remain below seasonal norms for the UK and Continental Europe, supporting gas demand

Ø Unexpected pipeline gas or nuclear outages, could both harm Britain’s ability to meet power demand during times of peak UK gas and power consumption.

Ø Lower gas inventories across Northwest Europe mean demand from injections into storage facilities during summer months is forecast to be higher than during previous years.

What to watch out for: Temperatures across the UK and Continental Europe are forecast to gradually rise throughout April. This could mean a dip in prices heading into May. However, if the UK or Europe encounters any major supply disruptions to either gas or power networks this could limit price declines during summer months.

Recommendations: Even though energy prices tend to decline during early summer months, the supply and demand risks in the market are more uncertain than in previous years. As a result, energy users with a more cautious approach to risk may consider securing their contracts before within the next month or two. Prices could dip further in June, however an unscheduled supply disruption could volatile prices as time goes on.

Beond Rolling Annual Indices since Jan-07

Beond Price Risk Report 1 April 2018
Source: Beond Analysis, Reuters

UK wind power record as turbines deliver 14 GW for first time – 37% of nation's electricity

On 17 March, wind farms in the UK set a new record by generating 14 GW of power for the first time, the National Grid’s highest ever metered wind output. This meant that wind turbines accounted for nearly 37% of the country’s total electricity mix. By contrast gas generated only 8.5 GW (23%), nuclear 6.5 GW (17.3%), coal just 4.7 GW (12.5%), both solar and biomass contributed 1.5 GW each (4.1%). Hydro came last with 0.3 GW or 0.9%.

Wind farms produced a record 15% of Britain’s electricity in 2017, up from 10% in 2016, according to a report by Drax electric insights. The dramatic increase comes from both higher wind speeds and a jump in installed capacity. Several large offshore farms have come online and onshore wind has had a record year for deployment.

Oil gains 7.4% on bullish Saudi comments and concerns over Iran’s crude exports

Brent crude oil prices topped $70/bbl for the first time since January on a surprise net withdrawal of U.S. crude oil inventories, bullish comments from Saudi Arabia and concerns over the future of Iranian crude exports. Saudi Energy Minister Khalid al-Falih announced that production cuts would need to continue into 2019 to reduce global inventories.

Meanwhile, President Donald Trump also continued to suggest the U.S. could pull out from the Iran nuclear deal, which would mean bringing back sanctions on the country and severely limiting Tehran’s ability to export crude oil.

Pound strengthens after Britain and EU agree to transition period until 2020

The Pound Sterling gained in value versus the US dollar, as Britain and the European Union agreed to a 21-month post-Brexit transition period and a potential solution to avoid a ‘hard border’ for Northern Ireland. There was also news over the weekend after the Brexit secretary David Davis said that a final deal between the UK and the EU was “incredibly probable”.

Global markets plunge as China reacts to Trump’s steel tariffs

Global markets have dropped sharply after China retaliated against Donald Trump’s decision to impose tariffs on steel and aluminium, fuelling fears of an all-out trade war between the world’s two largest economies. Hours after the US president announced moves to tackle what he believes are unfair trade practices, China signalled it would hit US goods such as pork, apples and steel pipe with higher duties.

Higher excess capacity charges kicked in on 1 April 2018

From 1 April 2018, new DUoS tariffs will apply to excess capacity charges, i.e. for any additional power consumed above contracted levels. Previously, the cost for these capacity charges was fairly similar. However, under the new tariffs any Half Hourly consumption that exceeds contracted capacity will cost significantly more.

The scale of charges will vary according to region, but on average, the increase in excess capacity charges will be around 90%. If a supply is regularly exceeding its assigned available capacity, this change could increase the overall electricity costs by up to 1-2% or more depending on the consumption profile.

Beond Risk Services

Beond risk service and online risk tools include a broad range of innovative hedging strategies which can deliver considerable cost savings at no additional risk, by harnessing market uncertainty and price volatility. Also our tender service uses an online reverse auction which creates an intensely competitive environment to produce best prices and full transparency.

Download

Disclaimer: These views and recommendations are offered for your consideration and Beond makes every effort to ensure that the data and information in this report is accurate.   However, due to the volatile and unpredictable nature of the energy markets, Beond cannot guarantee the accuracy of both the information and the recommendations provided.  Beond does not accept any responsibility for errors or misstatements, or for any direct, indirect, consequential or other loss arising from any use of this information and/or further communication in relation to this information.