Weekly UK Insight - 11 November 2019

Gas

p/therm 1 Nov 19 8 Nov 19 Change
Day-Ahead (DA) 28.50 38.00 33.3%
Dec 2019 42.82 41.94 -2.1%
Summer 2020 39.77 38.85 -2.3%
Winter 2020/21 49.80 49.15 -1.3%

Source: Reuters

The UK’s Day-Ahead gas price climbed 33.3% to 38.00p/therm as forecasts for below seasonal normal temperatures for the next week boosted expected demand for gas to be used in heating.

A fall in expected LNG imports has also pushed prices higher. Only 3 tankers are scheduled to arrive this week, totalling 295 mcm. This represents a significant reduction to the 969 mcm anticipated this time last week.

Despite falling temperatures, Dec 2019 gas prices fell 2.1%, with the UK system opening 33mcm/d oversupplied. This has been caused by weak gas for power usage, along with strong pipeline flows from the UK Continental Shelf.

Summer 2020 gas prices fell 2.3% to 38.85p/therm, as high gas storage levels weaken forward UK gas prices.

Gas storage in the EU remains over 97% of full capacity, meaning the region is heading in the peak winter demand in a strong position. This compares to 87% for the same period in 2018.

Unless Britain finds colder temperatures fully depleting stocks over the next few months, European stock levels could remain comfortable heading into next summer’s injection season. However, an extended period of colder weather beyond Q1 2020 could counteract this.

Lower European gas and coal prices also contributed to lower UK prices.

UK NBP

Weekly UK Insight 11 November 2019
Source: Reuters

Power

£/MWh 1 Nov 19 8 Nov 19 Change
Day-Ahead (DA) 34.33 46.19 34.5%
Dec 2019 48.96 48.10 -1.8%
Summer 2020 45.71 44.97 -1.6%
Winter 2020/21 53.03 52.41 -1.2%

Source: Reuters

Day-Ahead power prices jumped 34.5% to £46.19/MWh, reflecting a notable increase in gas spot prices and lower wind output today.

However, Dec 2019 power prices dropped 1.8% lower to £48.10/MWh tacking gas, coal and carbon, although the weaker Pound made imports slightly more expensive.

Summer 2020 power prices also fell 1.2% to £44.97/MWh in response to losses in the equivalent gas market, although an increase in oil provided some support.

UK POWER BASELOAD

Weekly UK Insight 11 November 2019
Source: Reuters

Oil

$/bbl 1 Nov 19 8 Nov 19 Change
Brent Crude Jan 20 61.69 62.51 1.3%

Source: Reuters

Brent crude oil prices rose 1.3% last week to $62.51/bbl after China hinted at progress towards a trade deal with the United States, raising hopes for an end to a long dispute that has weighed on economic growth and demand for fuel.

The trade dispute had previously prompted lower forecasts for oil demand and raised concerns that a supply glut could redevelop in 2020.

However, gains were limited following comments from U.S. President Donald Trump saying that the U.S. had not agreed to roll back tariffs on China.

BRENT CRUDE OIL – MONTH-AHEAD

Weekly UK Insight 11 November 2019
Source: Reuters

Exchange Rates & Economics

£/$ 1 Nov 19 8 Nov 19 Change
GBP/USD 1.2934 1.2770 -1.3%

Source: Reuters

The Pound Sterling fell in value versus the U.S. dollar and euro after Britain entered a new period of political uncertainty during the build up to the UK’s General Election on 12th December 2019.

While both major parties could theoretically win, the most likely outcome is expected to be that neither Boris Johnson’s Conservative party nor Jeremy Corbyn’s Labour party will secure the necessary majority needed to put the Brexit situation to bed.

Meanwhile, the International Monetary Fund (IMF) has warned Europe to make emergency plans to negate relieve the Continent from the negative impact of a growing economic slump.

EXCHANGE RATE – GBP/USD (£/$)

Weekly UK Insight 11 November 2019
Source: Reuters

Regulatory and Market News

Approval granted for £150 million renewable gas plant in Cheshire

Plans to build the UK’s first commercial scale Bio-Substitute Natural Gas (BioSNG) plant at Peel Environmental’s Protos site near Ellesmere Port have been approved unanimously by Cheshire West & Chester Council’s planning committee.

The £150 million plant, which is being developed by Progressive Energy, will generate renewable gas from up to 175,000 tonnes of bio-resources, including unrecyclable wood and refuse derived fuel (RDF). This gas will be used in the transport sector, generating enough fuel to power up to 1,000 low carbon HGVs and buses every year.

Chris Manson-Whitton from Progressive Energy said:

“Decarbonising the transport sector is going to be critical if we’ve any chance of reaching net zero emissions by 2050. We’re still hugely reliant on fossil fuels in the sector which, together with heat, accounts for around three quarters of UK energy consumption.

Today’s decision is a huge step forward to providing a reliable and renewable gas for transport fleets across the North West and beyond. This is just the first of many BioSNG plants that could be built across the country, helping to transform our transport sector and make a huge contribution to tackling climate change.”

As well as a transport fuel, BioSNG can be a replacement for the regular natural gas that is currently supplied to our homes and businesses. BioSNG can be injected into the existing gas network, providing the opportunity for the plant at Protos to export fuel to the wider UK without the need for any road movements.

The plant could also be configured in the future to produce renewable hydrogen, potentially linking into plans to build a hydrogen network in the region as part of the HyNet project with associated deep carbon savings.

Construction is due to start later next year with production commencing in late 2022. It is expected that a further eight similar facilities could be built across the UK during the 2020s.

Protos sits within the Energy Innovation District (EID) which brings together energy users, network owners, innovators and partners working alongside Cheshire & Warrington LEP, Cheshire West and Chester Council and the University of Chester. Being led by the Cheshire Energy Hub, the EID is developing a £300m project to create a smart local energy system that would see significant energy cost savings and reduction in greenhouse gas emissions.

LINK: Protos – £150m renewable gas plant approved

New gas turbine order aims to prepare UK for intermittent future

Statera Energy, the flexible energy company, has announced it has signed an agreement with MAN Energy Solutions, the power and marine sector original equipment manufacturer and energy solution provider, for the supply of a new class of highly efficient natural gas reciprocating engine.

The 24 engines, which are the first of their kind to be deployed in Britain, will deliver a total of 300 MW of highly efficient back-up power to the UK’s grid. They will be installed in six new 50 MW Statera power plants over the course of the next 18 months.

The UK’s commitment to reach net-zero carbon emissions by 2050 means that weather-dependent, intermittent, renewable sources of energy such as wind and solar are being deployed at scale over the coming years.

As a result, balancing the supply and demand of electricity will become increasingly challenging as back-up forms of generation alongside energy storage will need to respond rapidly to fluctuations or shortfalls in the output of renewable sources of power.

Statera’s new plants mark an innovative step change in the way natural gas can be used to meet the urgent nature of an energy deficit or peak demand on the UK electricity network when compared to current Combined Cycle Gas Turbine (CCGT) power plants.

The Statera plants can reach full capacity from standby within around five minutes, versus 60 minutes minimum for a CCGT, and their design has been optimised to be the most efficient way of turning natural gas to electricity for short runs of 4 hours or less. Analysis conducted by Aurora Energy Research predicts that the most common duration requirement for back-up power to support the renewable energy mix by 2050 will be for under 4 hours, which is why these new power plants are essential to meet this changing need.

Tom Vernon, Managing Director of Statera Energy, said: “The UK has set some of the most ambitious carbon and sustainability targets in the world, which will require a fundamental rethink of the way energy is produced, stored and used.

Renewables are going to be the dominant source of power in the future, and while batteries will balance the grid for daily fluctuations in supply and demand, flexible gas generation will play a crucial role in efficiently guaranteeing the security of supply for those prolonged periods where there is low renewable generation.”

LINK: Statera Energy – gas turbines

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