Weekly UK Insight - 12 August 2019

Gas

p/therm 2 Aug 19 9 Aug 19 Change
Day-Ahead (DA) 31.65 28.85 -8.8%
Sep 2019 32.72 33.99 3.9%
Winter 2019/20 50.96 50.38 -1.1%
Summer 2020 46.47 45.50 -2.1%

Source: Reuters

The UK’s Day-Ahead gas price slid 8.8% to 28.85 p/therm as the end of heavy maintenance at several North Sea facilities saw a notable increase in gas supply, with the UK gas system as much as 17 mcm/d oversupplied.

The majority of impacted UK Continental Shelf production has resumed today, although yearly maintenance at gas fields delivering to SEGAL and FLAGS will reduce flows until 20th August. However, there are no scheduled Norwegian outages expected to limit gas imports for at least the next two weeks.

LNG send-out from Britain’s terminals increased to 17 mcm/d, making space for two new LNG tanker deliveries expected to arrive in Britain over the next two weeks.

Winter 2019/20 gas prices moved 1.1% lower week-on-week to 50.38 p/therm, as ongoing injections into gas storage means that stockpiles across the EU region has now reached 86% of capacity. Last year, gas stockpiles didn’t reach this level until mid-October.

Meanwhile, the Russian-led Nordstream 2 gas pipeline project across the Baltic Sea to Europe could be delayed by up to eight months and cost an extra €660 million as a  result of to hurdles in securing the necessary permits from Denmark, the pipeline operator has said.

The pipeline is intended to provide an additional route for Russia’s gas to reach western Europe. The delay could be significant as Russia’s existing transit agreement with Ukraine is scheduled to finish at the end of 2019.

UK NBP

Weekly UK Insight 12 August 2019
Source: Reuters

Power

£/MWh 2 Aug 19 9 Aug 19 Change
Day-Ahead (DA) 42.48 34.19 -19.5%
Sep 2019 44.53 44.78 0.6%
Winter 2019/20 56.55 55.49 -1.9%
Summer 2020 50.77 49.69 -2.1%

Source: Reuters

Day-Ahead power prices plunged 19.5% to £34.19/MWh, reflecting the lower cost of spot gas, and higher wind generation.

Winter 2019/20 power prices lost 1.9% to £55.49/MWh, reflecting lower prices for UK gas, coal, carbon and European forward power prices.

However, there will be some concern with the UK government launching a formal investigation after National Grid was hit by a major power cut which impacted nearly one million people.

The outage happened after problems at two power stations – the gas-fired station at Little Barford at 16:58 BST and then at Hornsea offshore wind farm two minutes later.

UK POWER BASELOAD

Weekly UK Insight 12 August 2019
Source: Reuters

Oil

$/bbl 2 Aug 19 9 Aug 19 Change
Brent Crude Oct 19 61.89 58.53 -5.4%

Source: Reuters

Brent crude oil prices tumbled 5.4% week-on-week to $58.53/bbl, a seven-month low, extending recent heavy losses following a surprise build in U.S. crude stockpiles and fears that demand will shrink due to Washington’s escalating trade war with Beijing.

U.S. government data showed a build of 2.4 million barrels in U.S. stockpiles instead of the 2.8 million draw analysts had expected. U.S. crude oil inventories are about 2% above the five-year average for this time of year.

However, tensions in the Middle East remained high after Iran seized a number of tankers in recent weeks in the Strait of Hormuz, a major chokepoint for oil shipments. Saudi Energy Minister Khalid al-Falih and U.S. Energy Secretary Rick Perry on Tuesday expressed mutual concern over threats targeting freedom of maritime traffic in the Gulf.

BRENT CRUDE OIL – MONTH-AHEAD

Weekly UK Insight 12 August 2019
Source: Reuters

Exchange Rates & Economics

£/$ 2 Aug 19 9 Aug 19 Change
GBP/USD 1.2154 1.2034 -1.0%

Source: Reuters

The value of the Pound Sterling has continued to fall after official figures revealed the UK economy had shrunk for the first time since 2012 as concerns over the consequences of a no-deal Brexit mounted.

The UK economy had been expected to flatline in the latest quarter but instead it contracted by 0.2% as the impact of ongoing uncertainty around Brexit began to hit home. The economic contraction was driven by a plunge in manufacturing output, partly because car makers brought forward their annual shutdowns to April in anticipation of the previous 29 March Brexit deadline.

However, responding to the news Britain’s Chancellor, Sajid Javid, claimed that the “fundamentals of the British economy are strong”, pointing to rising wages and high employment.

EXCHANGE RATE – GBP/USD (£/$)

Weekly UK Insight 12 August 2019
Source: Reuters

Regulatory and Market News

Denmark’s Nord Stream 2 route request could cause eight-month delay, cost €660 million

The Russian-led Nordstream 2 gas pipeline project across the Baltic Sea to Europe could be delayed by up to eight months and cost an extra €660 million as a  result of to hurdles in securing the necessary permits from Denmark, the pipeline operator has said.

The 1,230-km Nord Stream 2 pipeline, now under construction, has come under fire from the United States and several eastern European, Nordic and Baltic countries, which say the conduit will increase Europe’s reliance on Russian gas.

Nord Stream 2, aimed at doubling the annual capacity of the existing Nord Stream pipeline by adding 55 billion cubic metres, is to run via the waters of Finland, Sweden, Denmark and Germany. It has approvals from all countries whose waters it crosses apart from Denmark.

In June, Nord Stream 2 withdrew its initial 2017 application for a route through Danish territorial waters south of the Baltic island of Bornholm.

Denmark could have vetoed the initial route. The country passed a law in 2017 that would allow it to ban the pipeline from passing through its territorial waters on security grounds.

However, no veto can be applied for the two remaining route options as they would steer the pipeline through Denmark’s exclusive economic zone, not its territorial waters.

Gazprom has completed more than 70% of Nord Stream 2 and according to calculations by Reuters, Gazprom’s pipe-layers will reach the Danish exclusive economic zone between three and five months from now.

Nord Stream 2 said in May the project may be launched in 2020 rather than the end of 2019 due to delays in obtaining permits from Denmark.

LINK: Euronews – Nord Stream 2 update

SSE secures Capacity Market contracts from RWE after decision to close Aberethaw B coal plant

Big Six energy supplier SSE has agreed for the transfer of capacity market contracts from RWE’s Aberthaw B coal-fired power station to its gas plant in Scotland.

The news follows German electric utility RWE’s announcement to close its 1.56GW coal plant in Wales next March amid “challenging” market conditions.

The energy company had therefore said it would transfer Aberthaw Power Station’s existing capacity market agreement for the years 2019/20 and 2020/21 to third parties and a small proportion to other RWE plants.

SSE’s Peterhead Power Station in Aberdeenshire will now secure the contracts for both years for the full capacity market volume – 1,051MW and 1,062MW respectively – under the agreement.

The Peterhead plant already holds capacity contracts for the years 2018/19 and 2021/22.

Stephen Wheeler, SSE’s Managing Director of Thermal Energy said: “This agreement means the station will be contracted through to September 2022, helping to safeguard customers’ power supplies by offering flexible and reliable generation capacity.”

LINK: SSE – Capacity Market contracts from RWE

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