Price Risk Report - 1 February 2019

Last Month Summary

UK gas and electricity prices fell overall during January. Gas prices ended the month 5.8% lower at 1.84 p/kWh temperatures started trending upwards, steadily reducing gas demand for heating. The return of several nuclear power plants to service in the UK, France and Belgium also reduced the demand for gas to be used in power generation.

The return to service of the 1.3GW Flamanville 1 nuclear plant in northwest France after a nine-month outage and Belgium’s 433MW Doel 2 reactor scheduled to restart production on 4th Feb drove wholesale electricity prices lower, falling 6.0% to 5.55 p/kWh.

Brent crude oil prices rose 13% to $60.84/bbl, January’s biggest monthly increase on record. Venezuela sanctions, a decline in U.S. fuel stockpiles and an anticipated pause in U.S. interest rate hikes are the latest bullish catalysts, combined with ongoing OPEC and Russian production cuts.

Energy Price Outlook

Bearish price drivers Bullish price drivers
Ø If temperatures across Northwest Europe continue to climb during February, power demand for heating could be lower than normal for this time of year.

Ø The scheduled return of French and Belgian nuclear reactors will reduce the demand for power capacity from other countries in Northwest Europe.

Ø The new 1,000MW Nemo Link sub-sea interconnector between the UK and Belgium will support supply during times of peak demand.

Ø Rising crude oil prices are likely to be a key driver for forward gas and power prices, driven primarily by OPEC production cuts.

Ø Brexit uncertainty still poses a significant price risk for the Pound Sterling, which could make gas and power imports more expensive.

Ø The start of the Market Stability Reserve is expected to gradually drive the price of carbon allowances above €25/tCO2,.

 

Recommendations: With temperatures currently below seasonal normal levels, winter supply risks still pose a threat. However, with prices falling in recent weeks contracts for Summer 2019 delivery could move lower. Various supply risks mean that markets could still experience price volatility during February, with unplanned outages very difficult to predict.

The potential for higher EU carbon prices and unscheduled supply disruptions means that UK electricity and gas prices are still at risk of rising higher ahead of April 2019 renewals.

Beond Rolling Annual Indices since Jan-07

Beond Price Risk Report 1 February 2019
Source: Beond Analysis, Reuters

Nemo Link power cable between Britain and Belgium starts operations

The 1,000MW Nemo subsea power interconnector that links the UK and Belgium has officially started operations. Nemo Link is one of a handful of new interconnectors being built between Britain and Continental Europe to increase the UK’s power supply flexibility. Britain already runs a 2,000MW interconnector with France and 1,000MW connection with the Netherlands. A 1,000MW link to France called IFA2 and the 1,400MW North Sea Link to Norway are also under construction and due to begin operations in 2019. In addition a 1,400MW cable to Denmark, the Viking Link, has been approved.

Oil posts biggest January gains on record following U.S. oil sanctions against Venezuela

Brent crude oil prices jumped 13% to $60.84/bbl, posting its biggest January increase on record. Venezuela sanctions, a decline in U.S. fuel stockpiles and an anticipated pause in U.S. interest rate hikes are the latest bullish catalysts.

About half of Venezuela’s roughly 1 million bpd in exports go to U.S. refineries. The sanctions are forcing Venezuela to find new buyers, primarily in India and China, and prompting American refiners to substitute the barrels.

Theresa May instructs MPs to reject Brexit plan so she can re-open negotiations with EU

British Prime Minister Theresa May demanded that her party reject her own Brexit plan so she could go back to negotiations with the European Union and dismantle an agreement that her government reached with the continent.

The problems all lie with the controversial Irish backstop, however EU leaders wasted no time in rejecting May’s call to reopen talks on the transitional Brexit deal.

China says they’ve made progress in ‘trade war’ talks with United States

China’s trade delegation says it made “important progress” in the latest round of talks with the U.S., China’s. At the end of a two-day meeting in Washington, no deal was reached but China pledged to buy more U.S. soybeans. U.S. President Donald Trump touted the promise as proof that the two sides were making progress. They are pushing to reach a deal by 1 March to avert an escalation in tariffs. President Trump said he hoped to meet Chinese President Xi Jinping to hash out a final agreement by the looming deadline.

Beond announces OJEU compliant Framework for public sector tenders

Beond has launched a brand new OJEU Framework to allow Public Sector buyers to benefit from a fully OJEU compliant tender using their innovative technology to deliver efficiency gains and tangible savings. The UK based energy software provider can offer increased competition by inviting up to 25 energy suppliers using a standalone OJEU compliant e-auction, or up to 10 suppliers via a call-off framework.

Beond’s framework is available to all public sector organisations in England, Wales and Scotland. Details on how to compare existing contracts and join the online e-auction can be found on the Beond website.

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.

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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.