Weekly UK Insight - 12 November 2018

Gas

p/therm 2 Nov 18 9 Nov 18 Change
Day-Ahead (DA) 62.25 61.30 -1.5%
Dec 2018 67.55 67.10 -0.7%
Q1-2019 67.62 66.85 -1.1%
Summer 2019 56.34 56.15 -0.3%
Winter 2019/20 64.91 64.97 0.1%

Source: Reuters

The UK’s Day-Ahead gas price dropped 1.5% to 61.30 p/therm as strong gas pipeline flows from Continental Europe, warmer temperatures and strong wind output has left the UK gas system around 9 mcm oversupplied. UK LNG terminals are also forecasting five cargo deliveries over the next two weeks.

Temperatures are forecast to remain above seasonal normal levels over the next week, which should result in lower gas demand to be used in heating.

Imports via Norway’s pipelines and domestic flows from the UK Continental Shelf are once again all flowing fairly close to capacity. Forecasts for Norwegian pipeline flows are predicted to remain close to capacity for the rest of winter, barring major outages.

Summer 2019 gas prices tracked winter prices lower, falling 0.3% to 56.15 p/therm week-on-week, tracking falls in oil, coal, and European gas markets. Several French and Belgian nuclear units are expected to come online in the next month, meaning there will be less demand for gas-fired power generation.

UK Medium Range Storage has already reached capacity, while strong gas injections across Northwest Europe have seen gas storage levels catch up with historic normal levels.

Russian owned Gazprom has announced that a Swiss court has issued an injunction blocking payments from the operators of the Nord Stream gas pipeline as part of a legal dispute between the Russian gas producer and Ukraine’s Naftogaz.

UK NBP

Weekly UK Insight 12 November 2018
Source: Reuters

Power

£/MWh 2 Nov 18 9 Nov 18 Change
Day-Ahead (DA) 55.16 60.39 9.5%
Dec 2018 63.19 63.54 0.6%
Summer 2019 54.90 55.43 1.0%
Winter 2019/20 60.69 61.58 1.5%

Source: Reuters

Day-Ahead power prices rose 9.5% to £62.01/MWh as significantly higher carbon prices made power production from fossil fuels more expensive.

Summer 2019 power prices rose 1.0% to £55.43/MWh as higher carbon and coal prices made power production more expensive across Germany and the UK. With Carbon prices forecast to hit €25/tCO2 by the end of 2018, UK power prices may not fall in the same way as UK gas.

Although several French and Belgian nuclear reactors are expected to return to service in the coming weeks, outages will still pose supply risks during times of peak winter demand.

UK POWER BASELOAD

Weekly UK Insight 12 November 2018
Source: Reuters

Oil

$/bbl 2 Nov 18 9 Nov 18 Change
Brent Crude Jan 19 72.83 70.18 -3.6%

Source: Reuters

Brent crude oil prices slid 3.6% last week, closing down at $70.18/bbl, as global supply increased and investors worried about the impact on fuel demand from lower economic growth and trade disputes.

Oil prices peaked in October on concerns that U.S. sanctions on Iran that came into force this week would deprive the oil market of substantial volumes of crude, draining inventories and bringing shortages in some regions. But other big oil producers have increased output steadily, more than compensating for lost Iranian barrels. The U.S., Russia and Saudi Arabia are all now pumping at or near record highs, producing more than 33 million bpd, a third of the world’s oil.

BRENT CRUDE OIL – MONTH-AHEAD

Weekly UK Insight 12 November 2018
Source: Reuters

Exchange Rates & Economics

£/$ 2 Nov 18 9 Nov 18 Change
GBP/USD 1.2970 1.2974 0.0%

Source: Reuters

The value of the Pound Sterling was essentially unchanged versus the U.S. Dollar last week.

Britain’s economy expanded at the fastest pace in two years during the third quarter, spurred by a surge in consumer spending over the hot summer and the soccer World Cup, which now appears to be tailing off ahead of Brexit.

The latest figures from the Office for National Statistics (ONS) showed GDP growth in the Q3 2018 was 0.6% – the fastest expansion since the final quarter of 2016.

EXCHANGE RATE – GBP/USD (£/$)

Weekly UK Insight 12 November 2018
Source: Reuters

Regulatory and Market News

Toshiba to close its UK nuclear business, in fatal blow to hopes for new 3.6GW Moorside plant

Toshiba plans to wind up its UK nuclear business after failing to find a buyer, dealing a potentially fatal blow to plans for a new nuclear power station in Cumbria.

Its NuGen division was behind the development of the 3.6GW nuclear project at Moorside.

Toshiba’s decision will put a dent in the UK government’s plans to develop new nuclear power stations.

The Japanese firm said it would start the wind-up process in January.

NuGen was initially co-owned by Toshiba and major French energy firm Engie. Toshiba was subsequently forced to buy the remaining 40% of NuGen it did not already own via a bankruptcy condition related to Engie.

“After considering the additional costs entailed in continuing to operate NuGen, Toshiba recognises that the economically rational decision is to withdraw from the UK nuclear power plant construction project, and has resolved to take steps to wind-up NuGen,” the Toshiba statement said.

However, the news may come as a relief for environmental activists who are likely to view the collapse of the scheme as an opportunity, rather than a risk, for the UK to prioritise renewables instead.

LINK: Toshiba – Moorside nuclear plant cancelled

Engie announces plans to restart two Belgian nuclear reactors following a series of delays

Engie Electrabel said last week that plans to restart two nuclear reactors in Belgium in December remained on track after Belgium’s energy minister voiced concerns over possible delays.

Belgian Energy Minister Marie-Christine Marghem said on Tuesday she was worried that the restart of the Doel 1 and 2 reactors could be delayed until the end of December.

That comes as Belgium’s energy production is plunging with six of its seven nuclear reactors offline for repairs and maintenance.

Engie’s Chief Operating Officer Paulo Almirante told a call with analysts that the restart schedule outlined in September still stood: “Today, there is nothing that should prevent that,” he said.

Inspections and repairs are ongoing at the Doel 1 and 2 reactors, which have both been offline since the spring after a leak was discovered in the backup cooling water system of Doel 1 in April.

Extended nuclear outages across Belgium and France have frequently had a knock-on impact for UK prices during recent winters. The UK’s National Grid typically imports electricity via sub-sea cables during times of peak UK winter demand, but power can flow in the opposite direction outside of this peak period.

LINK: Reuters – IUK Belgium nuclear outages

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