|p/therm||02 Sep 16||09 Sep 16||Change|
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 TEMPERATURE FORECAST
TOTAL UK GAS STORAGE
DAILY UK LNG SEND OUT
|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|
|£/MWh||02 Sep 16||09 Sep 16||Change|
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
|$/bbl||02 Sep 16||09 Sep 16||Change|
|Brent Crude Nov 16||46.83||48.01||2.5%|
Brent Crude rose 2.5% to $48.01/bbl last week, as crude inventories in the US recorded their biggest draw since January 1999. Oil stocks declined by 14.5 million barrels during the week, according to official EIA figures.
Gulf coast imports slumped to a record low, as Tropical Storm Hermine caused shutdowns at nine oil platforms in the Gulf of Mexico, reducing overall production. However, the temporary nature of weather events could mean the oil price spike caused by the draw will not be staying for long.
Major oil producers are expected to discuss options to boost oil prices between 26 and 28 September, but the chance of any solution being implemented during 2016 remains highly questionable.
BRENT CRUDE OIL – MONTH-AHEAD
|£/$||02 Sep 16||09 Sep 16||Change|
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 (£/$)
|€/tonne||02 Sep 16||09 Sep 16||Change|
|EUA Dec 16||4.11||4.11||0.0%|
European carbon prices were completely unchanged week-on-week, reflecting uncertain drivers in the market for carbon allowances. Member state officials are scheduled to discuss the phase 4 EU Emissions Trading System (ETS) review on 16 September, while the impact of Brexit on the carbon trading scheme will also be discussed on this day.
CARBON ALLOWANCES – EUA DEC-2016
|$/tonne||02 Sep 16||09 Sep 16||Change|
|API2 CIF ARA 2017||58.45||56.85||-2.7%|
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
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 (%)
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.
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.
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.
Disclaimer: These views and recommendations are offered for your consideration and Beond makes every effort to ensure that the data and information in this report is accurate. However, due to the volatile and unpredictable nature of the energy markets, Beond cannot guarantee the accuracy of both the information and the recommendations provided. Beond does not accept any responsibility for errors or misstatements, or for any direct, indirect, consequential or other loss arising from any use of this information and/or further communication in relation to this information.