UK gas and electricity prices rose significantly higher during April, as the combination of prolonged maintenance at several UK Continental Shelf’s (UKCS) gas terminals in the North Sea and the rerouting of Norway’s pipeline flows to the Continent left Britain’s gas system frequently undersupplied.
Aggregated gas storage levels in Northwest Europe (Belgium, France, Germany and the Netherlands) are at just 85 TWh, well below levels seen at this time of year over the past three years (averaged 180 TWh). 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 11.3% higher at 1.88 p/kWh, with electricity prices 8.1% higher at 5.37 p/kWh.
Brent crude oil prices rose to their highest level since late-2014, reflecting escalating tensions in Syria and threats from President Trump over the future of Iranian crude exports. As a result, the benchmark Brent crude contract increased 10.3% month-on-month.
|Bearish price drivers||Bullish price drivers|
|Ø Stronger storage injections across Northwest Europe over the coming summer months could alleviate supply concerns for winter.
Ø Milder weather for UK and Continental Europe forecast for April and the rest of summer.
|Ø Despite a brief increase in temperatures, forecasts are expected to dip below seasonal norms for the UK and Continental Europe at the start of May, 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 in the second half of May, potentially easing price pressure. However, there is a very real risk that crude oil, coal and carbon prices will continue to rise, boosting European and UK energy prices.
Recommendations: Current supply and demand risks are more unpredictable 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 in July, however any unscheduled supply disruptions could create significant price volatility before the October 2018 contract starts.
Just days after setting a new record of just shy of 55 hours without coal power, the UK’s electricity grid this afternoon completed another record coal-free run of over 76 hours. National Grid confirmed that the record meant that for the first time since the 1880s the UK electricity network has clocked up over three consecutive days without the need for coal generation. The new record came just days after the first ever 48-hour period of no coal on the network.
The record is part of a long-running trend. Analysts expect to see coal-free days and lengthy periods of coal-free operation become increasingly common as the UK works towards shuttering all its coal-fired power plants by 2025 at the latest. Coal accounted for just 7% of the UK power mix last year and two more coal plants are expected to close later this year.
Brent crude oil prices s jumped 10.3% to $74.64/bbl as rising tensions in the Middle East continued to feed concerns over potential supply disruptions in the region. The rally in crude prices came as the U.S. administration was working to marshal international support for a possible military strike (which took place mid-April) against Syrian President Bashar al-Assad for an alleged chemical-weapons attack. Renewed conflict in the Middle East, which could draw a response from Syrian ally Russia, could hinder oil output.
Meanwhile, President Donald Trump will decide by 12 May whether to quit a nuclear deal with Iran and restore sanctions, which would result in a reduction of Iranian oil exports.
The Pound Sterling lost value versus the US dollar, as lower growth figures for Britain’s economy reduced expectations that the Bank of England will hike interest rates in May. The Office for National Statistics found that GDP growth in Q1-2018 slowed to 0.1%, its weakest since the end of 2012, lower than the 0.4% recorded in the previous quarter. A slowdown had been expected in light of cold and snowy conditions during much of the quarter, but the scale of the decline was a surprise and prompted a sharp fall in the value of the pound to seven-week lows.
Europe’s economy lost momentum in the first quarter as GDP growth slowed in France and Germany, threatening to undermine the global growth the continent previously helped power. The latest numbers in Europe included a slump in French economic growth; and at the same time German business confidence slid to the lowest level in more than a year.
While the slowdown is partly due to storms that ripped through the region, and most officials have played it down, the European Central Bank acknowledged the weakening sentiment. If it persists, it could increase caution among policy makers about plans to cut stimulus this year.
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