Weekly UK Insight - 13 May 2019

Gas

p/therm 3 May 19 10 May 19 Change
Day-Ahead (DA) 34.80 36.35 4.5%
Jun 2019 33.99 32.54 -4.3%
Winter 2019/20 54.98 54.25 -1.3%
Summer 2020 45.00 44.45 -1.2%

Source: Reuters

The UK’s Day-Ahead gas price rose 4.5% to 36.35 p/therm, as the gas system ended the week 9mcm/d undersupplied.

On Friday, Norwegian gas pipeline flows to the UK were 31mcm down at 35mcm/d, mainly due to large yearly maintenance at the Troll gas field and Kollsnes processing plant.

Further unplanned outages in Norway could continue to hinder gas imports into Britain until the end of May.

Britain is only expected to receive three LNG tankers over the next two weeks, significantly lower than the volumes received over the last month. LNG send-out was lower than last week at 73 mcm/d.

On the demand side, temperatures are rising in Britain. However, a spell of colder weather in Central Europe has increased European gas demand for heating, boosting day-ahead prices.

Winter 2019/20 gas prices fell 1.3% to 54.25 p/therm, driven lower by crude oil and coal prices.

EDF Energy’s Hunterston B8 nuclear reactor is scheduled to return to service on Tuesday 14 May with the 640MW unit ramping up to full output soon after, reducing demand for gas to be used in power production.

Britain’s gas network is expected to return to be oversupplied this week, easing pressure on forward gas prices. As a result, gas storage facilities are expected to be completely filled well-ahead of the winter season.

UK NBP

Weekly UK Insight 13 May 2019
Source: Reuters

Power

£/MWh 3 May 19 10 May 19 Change
Day-Ahead (DA) 41.25 44.91 8.9%
Jun 2019 43.00 42.67 -0.8%
Winter 2019/20 57.58 57.54 -0.1%
Summer 2020 48.60 48.16 -0.9%

Source: Reuters

Day-Ahead power prices rose 8.9% to £44.91/MWh, in response to higher spot gas prices and weaker wind output at the end of last week.

Winter 2019/20 power prices fell 0.1% to £57.54/MWh, tracking weaker gas, oil and coal prices. The expected return of EDF’s Hunterston B8 nuclear reactor on 14 May also eased supply concerns.

However, rising carbon prices limited losses by making it less profitable for generators to burn coal for power generation.

UK POWER BASELOAD

Weekly UK Insight 13 May 2019
Source: Reuters

Oil

$/bbl 3 May 19 10 May 19 Change
Brent Crude Jul 19 70.85 70.62 -0.3%

Source: Reuters

Brent crude oil prices slipped 0.3% week-on-week to $70.62/bbl, as U.S.-China trade fears outweigh falling crude stockpiles.

Heightened tensions between the world’s two biggest economies have clouded the outlook for global growth and oil demand.

OPEC’s top producer Saudi Arabia has been reluctant to add more barrels to global supply because it fears a price crash, even as the organization is unsure of global supplies for the second half of 2019.

BRENT CRUDE OIL – MONTH-AHEAD

Weekly UK Insight 13 May 2019
Source: Reuters

Exchange Rates & Economics

£/$ 3 May 19 10 May 19 Change
GBP/USD 1.3171 1.2999 -1.3%

Source: Reuters

The value of the Pound Sterling fell versus the U.S. dollar and euro last week as the British currency is see as more vulnerable to economic turmoil amid the growing impact of the escalating trade war between the U.S. and China.

The Euro was among the strongest risers against the Dollar towards the end of last week following news the White House had increased tariffs on some Chinese goods exports to the U.S.

China has said it will retaliate against the U.S., but talks between the two countries are still ongoing so there remains some chance the whole situation can be brought back under control.

EXCHANGE RATE – GBP/USD (£/$)

Weekly UK Insight 13 May 2019
Source: Reuters

Regulatory and Market News

Committee on Climate Change says UK can cut emissions to nearly zero by 2050

The UK should lead the global fight against climate change by cutting greenhouse gases to nearly zero by 2050, according to a report by the Committee on Climate Change (CCC).

The CCC – the independent adviser to government on climate change – said it would not be able to hit “net zero“ emissions any sooner, but 2050 was still an extremely significant goal.

The report stressed the importance of improving the energy efficiency of housing, with poorer and more vulnerable parts of society more likely to be affected by energy inefficient homes.

This could be done via replacing gas boilers with low-carbon heating systems such as heat pumps or hydrogen boilers, or by improving the fabric of homes such as installing insulation and new windows, it said.

The report admitted that while these energy-efficiency improvements will have up-front costs, there is a ‘manageable cost’ to these challenges with savings made further down the line.

It said this will also lead to more comfortable homes, saving the NHS the health cost of conditions exacerbated by poor housing, currently estimated to be around £1.4 – 2bn a year in England alone.

‘Our net-zero scenarios imply a significant roll-out of energy efficiency measures in new and existing homes (around 6 million cavity walls, 6 million solid walls and 21,000 loft insulation measures),’ the report said.

‘High efficiency in new homes and retrofitted to existing homes can address poor thermal efficiency, overheating, indoor air quality and moisture in the round. This would result in thermally comfortable homes, reducing the risk of heat and cold-related deaths.’

LINK: CCC – GHG emissions phase out 2050

Ofgem reforms ‘could hit subsidy-free renewables with five-year setback’

Ofgem’s proposed network charging reforms could see subsidy-free renewables hit with five-year setback. That’s according to a new analysis by Aurora Energy Research, which suggests the regulator’s Targeted Charging Review (TCR), which proposes an overhaul of network charges for all types of generation across the UK power system, will favour low-efficiency gas power at the expense of onshore wind and solar energy.

This finding conflicts with the assessment conducted by Ofgem, which found renewable deployment would not be adversely affected but noted combined cycle gas turbines would be negatively impacted.

The proposals aim to level the playing field between different forms of generation through a series of measures, including removing so-called ‘embedded benefits’ for smaller power generators connected to the distribution system and removing a credit currently paid to all transmission-level generators.

Aurora says implementing the changes would would ‘damage the economics’ of distribution-connected renewables such as onshore wind and solar by removing their embedded benefit, imposing new balancing charges on them and slightly reducing their revenues.

It predicts the changes would mean deployment of solar would be 5GW lower by 2035, while onshore wind deployment would decrease by 1GW.

It also notes it could push back deployment of smart solutions such as batteries and demand response and encourage more gas generation than necessary to stay in operation.

LINK: Aurora – subsidy-free setback

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