Weekly UK Insight - 12 September 2016

Gas

p/therm 02 Sep 16 09 Sep 16 Change
Day-Ahead (DA) 25.45 23.50 -7.7%
October 16 32.51 30.30 -6.8%
Winter 16/17 39.05 37.80 -3.2%
Summer 17 36.41 35.48 -2.6%

Source: Reuters

Gas prices for Winter 2016/17 fell 3.2% as the front season reflected weak demand and an oversupplied gas system. Declines across the gas curve were driven primarily by mild temperatures and strong LNG send-out from South Hook during the start of September. South Hook and the smaller Dragon LNG terminal can handle a combined 25% of the UK’s gas requirement.

The gas system was oversupplied by 25 mcm/d on Friday due to high pipeline flows from Norway and the UK Continental Shelf (UKCS). Technical issues between Norway and Continental Europe continued, resulting in strong gas nominations heading to the UK via the Langeled pipeline. European maintenance ended on schedule yesterday, but has not yet resulted in lower imports into Britain.

Daily temperatures averaged 18.5°C last week, comfortably above seasonal normal levels, decreasing the demand for gas used in domestic water heating. The British spot gas price traded close to 7-year lows as the system struggled to balance supply and demand fundamentals.

National Grid’s outlook has forecast the UK gas system 50 mcm/d oversupplied for today, as a result of higher Norwegian pipeline flows and output from the UKCS. Mild temperatures are broadly expected to remain in Britain throughout September, however cooler weather later in the year could present a price risk.

UK NBP

Weekly UK Insight 12 September 2016
Source: Reuters

UK TEMPERATURE FORECAST

Weekly UK Insight 12 September 2016
Source: Reuters

TOTAL UK GAS STORAGE

Weekly UK Insight 12 September 2016
Source: Reuters

DAILY UK LNG SEND OUT

Weekly UK Insight 12 September 2016
Source: Reuters
LNG Tanker Regas volume (mcm) Expected Arrival Date From Port
Al Samriya 157 14 September Qatar South Hook
Al Hamla 129 19 September Qatar Dragon
Zarga 159 19 September Qatar South Hook
Artic Lady 88 20 September Trinidad Isle of Grain
Aamira 162 24 September Qatar South Hook or Isle of Grain

Power

£/MWh 02 Sep 16 09 Sep 16 Change
Day-Ahead (DA) 33.35 36.40 9.1%
October 16 39.21 39.00 -0.5%
Winter 16/17 44.80 44.37 -1.0%
Summer 17 38.01 37.68 -0.9%

Source: Reuters

Seasonal power prices for Winter 2016/17 declined 1.0%, settling at £44.37/MWh on Friday, as seasonal electricity markets took direction from the lower price of gas, as well as weaker sentiment in coal markets.

Production at Heysham 2-8 declined around 470MW, after reducing nuclear output for scheduled refuelling. The planned outage is expected to last until 25 Oct, meaning the reactor should be back up to full power before the peak winter consumption period in Britain.

Hartlepool 1 went offline in an unplanned outage last week, reducing output by around 535MW. Operator EDF revealed the unexpected shutdown was to address a transformer cable fault.

UK POWER BASELOAD

Weekly UK Insight 12 September 2016
Source: Reuters

Oil

$/bbl 02 Sep 16 09 Sep 16 Change
Brent Crude Nov 16 46.83 48.01 2.5%

Source: Reuters

Brent Crude rose 2.5% to $48.01/bbl last week, as crude inventories in the US recorded their biggest draw since January 1999. Oil stocks declined by 14.5 million barrels during the week, according to official EIA figures.

Gulf coast imports slumped to a record low, as Tropical Storm Hermine caused shutdowns at nine oil platforms in the Gulf of Mexico, reducing overall production. However, the temporary nature of weather events could mean the oil price spike caused by the draw will not be staying for long.

Major oil producers are expected to discuss options to boost oil prices between 26 and 28 September, but the chance of any solution being implemented during 2016 remains highly questionable.

BRENT CRUDE OIL – MONTH-AHEAD

Weekly UK Insight 12 September 2016
Source: Reuters

Exchange Rates & Economics

£/$ 02 Sep 16 09 Sep 16 Change
GBP/USD 1.3288 1.3262 -0.2%

Source: Reuters

The value of the pound ended the week little changed compared to the US dollar, down just 0.2%. However, the pound sterling could rise some 3% against the Euro, say analysts at Morgan Stanley, who have suggested recent economic data releases actually leave the UK currency looking undervalued.

Despite this optimistic view, the British Chambers of Commerce downgraded its expectations for the country’s GDP growth over the next three years. The organisation believes GDP will grow just 1.8% in 2016 (down from 2.2% prior to the Brexit result), 1% in 2017 (down from 2.3%) and 1.8% in 2018 (down from 2.4%). It points to a fall in investment off the back of the ongoing uncertainty with regards to the UK’s future within the EU as the main reasons for the lower growth forecasts.

EXCHANGE RATE – GBP/USD (£/$)

Weekly UK Insight 12 September 2016
Source: Reuters

Carbon

/tonne 02 Sep 16 09 Sep 16 Change
EUA Dec 16 4.11 4.11 0.0%

Source: Reuters

European carbon prices were completely unchanged week-on-week, reflecting uncertain drivers in the market for carbon allowances. Member state officials are scheduled to discuss the phase 4 EU Emissions Trading System (ETS) review on 16 September, while the impact of Brexit on the carbon trading scheme will also be discussed on this day.

CARBON ALLOWANCES – EUA DEC-2016

Weekly UK Insight 12 September 2016
Source: Reuters

Coal

$/tonne 02 Sep 16 09 Sep 16 Change
API2 CIF ARA 2017 58.45 56.85 -2.7%

Source: Reuters

European coal prices fell 2.7% last week, as cooler weather across continental Europe reduced the demand for electricity used in air conditioning. Prices were also hit by the US and China formally ratifying the COP21 Paris climate agreement at the G20 summit. Forecasts predict that a 40% decline in coal trading will drive prices below $50/tonne post-2020.

COAL – API2 CIF ARA 2017

Weekly UK Insight 12 September 2016
Source: Reuters

Regulatory and Market News

Centrica agrees £2bn contract to buy LNG from Qatar until 2023

Centrica has extended its multi-billion pound contract to buy gas from Qatar until 2023, as it eyes fresh imports to the UK to replace dwindling North Sea supplies.

The new deal, understood to be worth up to £2bn, will see the energy giant buy up to 2m tonnes of LNG each year from January 2019, after its existing contract expires.

“With the decline in North Sea production and the recent growth in global LNG supply, the UK is increasingly becoming an attractive destination for LNG,” Centrica said.

The energy giant first struck a 3-year deal to buy LNG from Qatargas in 2011, before extending it with its current deal, which runs to December 2018.

There is no obligation for the company to bring any of the LNG to the UK – it could, for example, sell it to other countries in Europe. However, Centrica has imported 40 cargoes to the country over the past five years.

The UK currently imports about half of its gas, but this is forecast to increase to nearer two-thirds by the mid-2020s as old North Sea gas fields are decommissioned.

Last year LNG accounted for 31% of gas imports, with 92% of those from Qatar.

UK Gas Import Dependency (%)

Weekly UK Insight 12 September 2016
Source: UK Oil and Gas Authority

Saad Sherida Al-Kaabi, chairman of the Qatargas board, said the deal would allow Qatar to positively contribute to the UK’s energy security for years to come”.

LNG vessels will deliver the LNG to the Isle of Grain terminal, in the UK.

LINK: Qatargas – Centrica signs £2bn LNG contract

Britain’s only approved fracking project unlikely to go ahead before 2017 after legal challenge

Britain’s efforts to get fracking for shale gas have suffered a fresh delay after it emerged a legal challenge against the only approved project will not be heard until the 22 November – later than had been expected.

Shale explorer Third Energy had hoped to start work at its Kirby Misperton site in North Yorkshire before the end of 2016, after getting planning consent in May.

However, green groups applied a judicial review of North Yorkshire County Council’s decision, claiming councillors failed to assess the impact of the project on climate change and assess financial safeguards against environmental damage. Even if the challenge is dismissed there is now no chance of Third Energy fracking this year and work may not get underway until well into 2017.

The delay is the latest in a long string of setbacks in the Government’s efforts to ‘fast track’ fracking in the UK. Not a single well has been fracked since 2011, when fellow shale explorer Cuadrilla caused earth tremors attempting to frack in Lancashire.

LINK: Telegraph – Fracking legal challenge

Ofgem publish guide to explain changes to business customers’ ‘P272’ electricity meters

By 1 April 2017, all businesses in profile classes 05-08 will have their energy use recorded every half hour. This is part of a process called ‘settlement’.

It applies to all businesses in profile classes 05-08 and who have an advanced meter installed. It is up to the supplier to take all reasonable steps to ensure that businesses in profile classes 05-08 are supplied through advanced meters. This has been the case since April 2014.

Some businesses may be asked to pay more. One of the main reasons for this increase will be because they will now face charges for the power capacity the distribution network operator has reserved on their electricity network.

In the future, we expect bills to go down as consumers take more control of their consumption, spreading their use out across the day not just in peak hours. This will bring down costs for network operators, enabling them to avoid future costs and reduce their charges.

LINK: Ofgem guide to BSC P272 and P322 changes

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