Weekly UK Insight - 11 February 2019

Gas

p/therm 1 Feb 19 8 Feb 19 Change
Day-Ahead (DA) 50.10 48.55 -3.1%
Mar 2019 50.07 48.05 -4.0%
Summer 2019 48.29 45.88 -5.0%
Winter 2019/20 59.98 58.04 -3.2%

Source: Reuters

The UK’s Day-Ahead gas price fell 3.1% to 48.55 p/therm as the UK gas system was 15 mcm oversupplied on Friday as a result of milder weather forecasts, steady pipeline flows and increased LNG deliveries.

UK average temperatures are above seasonal normal levels for this time of year and trending upwards for the next two weeks, reducing gas demand for heating. However, for the moment National Grid’s forecast gas demand is expected at 337 mcm/d, higher that the seasonal normal demand of 288 mcm/d.

Two LNG tankers have arrived at UK terminals today with five more scheduled for delivery within the next two weeks, supplying Britain’s gas network during the second half of February. Total LNG send-out is expected at 51 mcm/d from all UK terminals.

Summer 2019 gas prices slid 5.0% to 45.88 p/therm reflecting losses in European gas, power, oil and coal prices, as well as milder seasonal temperature forecasts and lower concerns of major nuclear outages across Northwest Europe.

The increase in LNG imports also remains a strong signal of the new supply coming online in the global market. At least three major projects in the United States are still expected to get the go-ahead in the first six months of 2019. The flurry of activity has the United States on track to become the third largest exporter of LNG in the world, behind Australia and Qatar.

UK NBP

Weekly UK Insight 11 February 2019
Source: Reuters

Power

£/MWh 1 Feb 19 8 Feb 19 Change
Day-Ahead (DA) 54.04 47.52 -12.1%
Mar 2019 53.09 52.06 -1.9%
Summer 2019 51.56 50.20 -2.6%
Winter 2019/20 59.79 58.84 -1.6%

Source: Reuters

Day-Ahead power prices fell 12.1% to £47.52/MWh.

Summer 2019 power prices declined 2.6% to £50.20/MWh, tracking lower gas prices and as Belgium’s 433MW Doel 2 nuclear reactor restarted production on 4th Feb, reducing demand for UK power during peak times.

However, further out EDF’s decision to close its 2,000MW Cottam coal-fired power plant on 30th Sept limited price declines as the loss of power capacity could be a risk during winter months.

UK POWER BASELOAD

Weekly UK Insight 11 February 2019
Source: Reuters

Oil

$/bbl 1 Feb 19 8 Feb 19 Change
Brent Crude Apr 19 62.75 62.10 -1.0%

Source: Reuters

Brent crude oil prices fell 1.0% to $62.10/bbl last week as drilling activity in the U.S. pricked up. The number of oil rigs increased by seven week-on-week, bringing the total count to 854, pointing to a further rise in U.S. crude production. U.S. output already stands at a record 11.9 million bpd, making the U.S the world’s largest oil producer.

Meanwhile, UAE’s oil minister Suhail Al Mazrouei said OPEC expected the oil market to reach a balance between supply and demand in Q1-2019. OPEC, Russia and other non-OPEC producers agreed in December to reduce oil production by 1.2 million bpd from 1st Jan.

BRENT CRUDE OIL – MONTH-AHEAD

Weekly UK Insight 11 February 2019
Source: Reuters

Exchange Rates & Economics

£/$ 1 Feb 19 8 Feb 19 Change
GBP/USD 1.3083 1.2947 -1.0%

Source: Reuters

The value of the Pound Sterling declined versus the U.S. dollar ahead of UK GDP data that is expected to have slowed markedly, with industrial and manufacturing production is also released alongside total investment and the goods trade balance.

The global focus is back on Chinese-U.S. relations, with concerns about the Chinese economy slowing front and centre. While both sides were upbeat, hopes of finding a resolution to the dispute took a knock last week when US President Donald Trump said it was “unlikely” he would meet Chinese President Xi Jinping this month, with a face-to-face meeting seen as key to cementing a deal.

EXCHANGE RATE – GBP/USD (£/$)

Weekly UK Insight 11 February 2019
Source: Reuters

Regulatory and Market News

EU agrees tighter rules for Nord Stream 2 pipeline supplying gas from Russia and Germany

European Union officials have agreed to toughen regulations on a controversial gas pipeline from Russia to Germany, but they have decided not to back plans that might threaten its completion.

The EU wants to bring pipelines coming into the bloc under its energy rules. However, Germany feared that would make the new pipeline uneconomic and unviable.

France said it was delighted that Germany had agreed to place Nord Stream “under European control”, and in return Germany is likely to remain as lead negotiator on the project. German Chancellor Angela Merkel also praised the deal.

For years, the 28-member bloc has been concerned about reliance on Russian gas. Russia currently supplies around 40% of the EU’s gas supplies. The new pipeline would increase the amount going under the Baltic to 55bcm a year.

The EU is also trying to look beyond Russian gas – to imports of U.S. liquified natural gas and new pipelines, such as a planned Norway-Poland pipeline via Denmark, that would supply Sweden and other neighbouring states.

A big priority for the EU is to increase competition. Instead of having a patchwork of different agreements for pipelines entering the bloc, they would have to come under the EU’s rules for the internal energy market. Those rules include separation of ownership of the pipes from the supplier – known as unbundling. With Nord Stream 2, Russia’s Gazprom controls both.

Work on the 1,225km Nord Stream 2 pipeline under the Baltic Sea is set to end this year.

LINK: BBC – Nord Stream 2 update Feb 2019

EDF Energy to close its two coal-fired station at Cottam in September

EDF Energy has announced that generation will end at its 2,000MW Cottam coal-fired station on 30 September 2019.

The 2,000MW plant was only designed to operate for 30 years, but has played a critical role in supplying Britain’s power grid for more than 50 years.

EDF’s decision reflects the challenging market conditions over the last few years and the context of the drive to decarbonise electricity generation. Subsequently Cottam’s French operators determined that the coal-fired power plant will not be economically viable beyond the end of September 2019.

Cottam will be the most recent coal power station to close since the closure of the 2,000MW Eggborough coal fired plant in Yorkshire in September last year, a decision which was taken by the plant’s owners after it failed to land a T-1 Capacity Market contract seven months prior.

The closure of Cottam will leave EDF with just one remaining coal-fired station in operation. EDF’s 2,000MW West Burton A, has Capacity Market agreements in place for three of the four units until September 2021. EDF Energy said it will review the future of that station beyond that date.

LINK: EDF – Cottam coal-fired plant to close in Sept

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