UK gas and electricity prices rose during August, reflecting a heavy maintenance schedule at the Troll gas field, reducing gas flows by 36 mcm/d, according to Norway’s gas pipeline operator Gassco. The UK gas system also ended the month undersupplied by 30 mcm/d, as a result of planned maintenance across major UK Continental Shelf pipelines in the North Sea, reducing flows by a further 35 mcm/d. Gas prices ended the month 12.4% higher at 2.24 p/kWh, with electricity prices rising 11.1% to 6.38 p/kWh.
Industrial action affecting the flows at three of TOTAL’s gas and oil platforms, was also scheduled for 3rd September, reducing available gas supply forecasts. These three fields contribute about 10% of the UK’s total domestic gas output.
Brent crude oil prices rose 4.6% to $77.64/bbl, as risks of supply disruptions in Venezuela, Libya, Nigeria and Iran triggered expectations of a tightening market. Crude supplies were also relatively tight due to voluntary restraints on output by the OPEC. Additionally, many of Iran’s customers are already facing difficulties buying the country’s crude oil even before USA sanctions are enforced in November.
|Bearish price drivers||Bullish price drivers|
|Ø If mild temperatures across North West Europe. continue through September and into the winter months, power demand for heating could be lower than normal for this time of year||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.
Ø Carbon prices have soared above €21/tCO2,. With recent forecasts predicting prices will reach €25/tCO2 by the end of 2018, this could push UK gas and power markets higher.
What to watch out for: With less than one month remaining until the start of the winter period, any major unscheduled outages are likely to create significant volatility in prices. UK and Continental European gas storage remains significantly lower than normal, meaning there is less flexibility in supply causing prices to be even more sensitive to unplanned pipeline and nuclear outages than in previous years.
Recommendations: Current supply and demand risks remain less predictable than in previous years. As a result, energy users may want to consider securing their contracts immediately. While it is possible that prices could dip in the last few weeks of September, the rising EU carbon market and unscheduled supply disruptions force UK electricity and gas prices even higher.
Flexibility providers with units as small as 1MW will be able to access the Balancing Mechanism (BM) by April next year under proposals published by National Grid which will also allow aggregators to play in the market. The BM, worth an estimated £350 million a year to participants, rewards those able to increase or decrease generation or consumption. This flexibility is bid in to half hourly settlements periods with National Grid paying out what is needed in order to keep the system balanced. In a series of reforms to the existing regulatory framework, National Grid will modify the Balancing and Settlement Code (BSC) to allow providers without a supplier licence to create aggregated Balancing Mechanism Units (BMUs). These are subject to approval but if signed off by Ofgem will potentially be implemented in April 2019.
Brent crude oil prices rose 4.6% to $77.64/bbl, as risks of supply disruptions in Venezuela, Libya, Nigeria and Iran triggered expectations of a tightening market. Crude supplies were also relatively tight due to voluntary restraints on output by the OPEC. Additionally, many of Iran’s customers are already facing difficulties buying the country’s crude oil even before USA sanctions are enforced in November. Iran’s crude oil exports are expected to drop by more than 2 million bpd in August (from 3.1 million in April) due to sanctions imposed by the USA.
After assuming for a year or so that the UK and the EU would reach some kind of trading agreement post-Brexit, the market is now beginning to think seriously about the possibility of a “no deal” Brexit.
A no deal Brexit has also overtaken the UK joining the European Economic Area – the so-called “Norway option” – as the second-most likely scenario predicted by economists, although a free trade deal between the UK and EU is still considered by most to be the likeliest outcome.
The EU would be willing to remove all tariffs on cars in a trade deal with the USA, according to EU trade commissioner Cecilia Malmstrom, underlining the EU’s readiness to expand the scope of trade talks agreed with Washington. Malmstrom said Brussels would negotiate a zero-tariff deal on cars if the USA reciprocated, something she cautioned “remains to be seen”.
London mayor Sadiq Khan has written a letter to Energy Minister Claire Perry, claiming he was “deeply concerned” that Government proposals to end the Feed-in Tariff (FiT) scheme once it expires in March 2019 would hamper his own efforts to boost deployment of solar technology in the capital.
According a Government consultation, the FiT scheme has achieved its ambition to support the deployment of small-scale (5MW or less) renewable technologies. However, the Government also argues that installations and installed capacity have exceeded expectations.
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