Weekly UK Insight - 10 June 2019

Gas

p/therm 31 May 19 7 Jun 19 Change
Day-Ahead (DA) 26.30 28.50 8.4%
Jul 2019 27.57 28.59 3.7%
Winter 2019/20 52.15 52.79 1.2%
Summer 2020 44.12 45.12 2.3%

Source: Reuters

The UK’s Day-Ahead gas price jumped 8.4% to 28.50 p/therm, rebounding from two-year lows for Britain’s spot gas prices on an 8 mcm/d undersupplied system.

The start of further maintenance at Norway’s Troll gas field reduced production capacity by 42 mcm/d. Meanwhile, the low day-ahead gas price has meant that Rough gas storage is not currently withdrawing gas and is expected to restart in October, when spot prices are expected to be higher.

On the demand side, cooler weather for the start of the week left temperatures below seasonal normal levels for the start of the week. As a result, National Grid’s forecast gas demand is expected at 197 mcm/d, above the seasonal normal demand of 166 mcm/d.

Winter 2019/20 gas prices rose 1.2% to 52.79 p/therm, driven higher by domestic UK supply risks, higher European coal prices and concerns over gas imports from the Netherlands.

Resident’s in the Netherlands’ Groningen province were hit with an earthquake on Sunday morning, measuring 2.5 on the Richter Scale, causing 127 reports of damages to property. The shocks have already caused the Dutch government to slash gas output from 19.4 bcm to 15.9bcm, but recent tremors mean senior ministers are proposing to cap production at no more than 12 bcm.

In related news, Russian Energy Minister confirmed plans to push ahead with construction of the 55 bcm/year Nord Stream 2 pipeline, despite complications in gaining permits from Denmark and the threat of U.S. attempts to block the project.

UK NBP

Weekly UK Insight 10 June 2019
Source: Reuters

Power

£/MWh 31 May 19 7 Jun 19 Change
Day-Ahead (DA) 38.04 34.66 -8.9%
Jul 2019 39.10 39.13 0.1%
Winter 2019/20 56.04 56.28 0.4%
Summer 2020 47.66 48.13 1.0%

Source: Reuters

Day-Ahead power prices declined 8.9% to £34.66/MWh, in despite of a surge in spot gas prices, as strong wind output supported power supply forecasts for the coming week.

Winter 2019/20 power prices rose 0.4% to £56.28/MWh, reflecting gains in gas, coal, carbon and German forward prices.

Meanwhile, an unplanned outage at EDF’s Hinkley Point B-7 nuclear reactor is scheduled reduce the grid’s power capacity by 480MW for several weeks. A further seven nuclear reactors are offline for planned maintenance, but major nuclear outages in recent years in the UK, France and Belgium have raised concerns over extended outages impacting supply during winter seasons.

UK POWER BASELOAD

Weekly UK Insight 10 June 2019
Source: Reuters

Oil

$/bbl 31 May 19 7 Jun 19 Change
Brent Crude Aug 19 64.49 63.29 -1.9%

Source: Reuters

Brent crude oil prices fell to their lowest point since January, falling 1.9% week-on-week to $63.29/bbl, as Russia is undecided on the need to extend an output deal between OPEC and its allies until the end of the year.

President Vladimir Putin said last week that Russia and OPEC disagreed over what constituted a fair price for oil, although he hoped they would take a joint decision at the policy meeting.

There is disagreement within Russia, with some warning against extending the deal, saying the agreement posed a strategic threat to Moscow as it could allow the United States to take Russian market share.

BRENT CRUDE OIL – MONTH-AHEAD

Weekly UK Insight 10 June 2019
Source: Reuters

Exchange Rates & Economics

£/$ 31 May 19 7 Jun 19 Change
GBP/USD 1.2631 1.2734 0.8%

Source: Reuters

The value of the Pound Sterling edged higher versus the U.S. dollar and euro as the Conservative party’s search for a new leader is perceived to open the door for the possibility of a ‘softer’ Brexit.

The Bank of England does not seem in a hurry to raise interest rates in the current environment with UK leading indicators suggesting a small slowdown, inflation and wages under control, weakness in Europe and prolonged Brexit uncertainty. With other central banks on hold, it is unlikely in the short-term that the Bank of England would want or need to push for stronger GBP, or higher rates.

EXCHANGE RATE – GBP/USD (£/$)

Weekly UK Insight 10 June 2019
Source: Reuters

Regulatory and Market News

Aquind calls for construction bids for planned 2 GW UK-France interconnector

Independent developer Aquind Ltd has called for bids to build a 2 GW power interconnector between Portsmouth and Normandy in France.

The cable route length is put at 238 km, including a 20 km stretch on UK land, 38 km on French land and 182 km subsea. The expected commissioning date is December 2023.

Aquind Interconnector will have capacity to transmit up to 16 TWh of electricity or approximately 5% of Great Britain’s total electricity consumption.

The tender is in three lots – for converter stations, for high voltage direct current and fiber optic cables, and for converters and other cables.

The European Union estimates that the total value of the project will cost around €1.3 bn ($1.45 bn), with construction slated to start in 2020.

“Aquind Interconnector has been granted status of EU Common Project of Interest Reference and may become eligible for European Union Funds,” the company said.

Two UK-France links are in construction and another is proposed in addition to Aquind Interconnector.

The 1GW IFA2 link is heading for completion this winter, according to co-developer National Grid (in partnership with French transmission grid counterpart RTE).

The similar sized ElecLink, running through the Channel Tunnel, is due to commission in Q4 2019 and begin full operation in Q1 2020.

Finally, the 1.4 GW FAB Link (France-Britain) hopes to start construction next year.

LINK: Platts – Aquind 2GW interconnector

Shell says government should subsidise batteries to boost flexible balancing

The UK government should consider targeted support for small-scale battery storage if it wants households to participate in a smarter, lower carbon energy system, according to Brian Davis, vice president, Energy Solutions at Shell International.

Shell subsidiary Sonnen has deployed hundreds of megawatts of storage into households and small businesses in its home market, where domestic storage penetration, roughly 600MW, is greater than industrial storage (around 380MW).

Sonnen and others use domestic batteries to help balance the German grid. While there are companies in the UK providing grid balancing services via domestic batteries, the market is small in comparison.

While renewable generation creates an “increasingly intermittent supply picture, the demand picture is becoming increasingly controllable,” said Davis. Technologies such as electric vehicles, heat pumps and batteries “all internet connected” can help “balance what can’t be controlled on supply”.

“Some form of focused subsidy” for domestic storage would help provide flexibility faster and deliver lasting benefits. “Our batteries last 10,000 cycles, they are a long-term asset. They can be aggregated to provide grid resource and services over what a household needs.”

LINK: Minesto – €14.9m marine energy funding

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