Weekly UK Insight - 14 May 2018

Gas

p/therm 4 May 18 11 May 18 Change
Day-Ahead (DA) 52.75 55.05 4.4%
Jun 2018 52.28 53.89 3.1%
Q3-2018 52.90 54.94 3.8%
Winter 2018/19 59.24 61.93 4.6%
Summer 2019 45.35 48.12 6.1%

Source: Reuters

The UK’s Day-Ahead gas price increased 4.4% week-on-week as production at the Bacton Seal gas terminal is zero as a result of unexpected one-day maintenance.

Temperatures are forecast to fall briefly below the seasonal norm in the next couple of days, boosting heating demand in colder parts of the UK.

Send-out from LNG terminals into the UK system is currently at 10 mcm/day, with two further LNG cargoes arriving with the next fortnight.

Norway’s Langeled pipeline is scheduled to be fully shut on 24 May, with Kollsnes and all connected fields shut down. The following day should see Norway’s Troll gas field at half capacity (60 mcm/d) and Langeled unlikely to be more than 20 mcm.

Forward prices for Winter 2018/19 rose 4.6% to 61.93 p/therm as higher European gas and crude oil prices were bullish for UK gas seasons.

In addition, supply disruptions limiting gas imports into Continental Europe from both Libya and Russia are pushing up forward prices. As a result, Norwegian gas flows continue to be rerouted from the UK to Continental Europe.

However, in other news Centrica has announced that its Rough gas storage site will produce approximately 1.4-1.7 bcm of gas this year, slightly above expectations.

Rough Storage used to provide around 70% of Britain’s gas storage capacity but was closed last year after it became too costly to maintain the 30-year-old site. As a result, Centrica reclassified Rough in order to sell off the remaining ‘cushion gas’ supplies held in store.

UK NBP

Weekly UK Insight 14 May 2018
Source: Reuters

Power

£/MWh 4 May 18 11 May 18 Change
Day-Ahead (DA) 50.44 52.01 3.1%
Jun 2018 51.76 53.46 3.3%
Q3-2018 52.13 54.37 4.3%
Winter 2018/19 56.98 59.59 4.6%
Summer 2019 46.30 48.89 5.6%

Source: Reuters

Day-Ahead power prices rose 3.1% last week to £52.01/MWh, reflecting a higher cost of spot gas and coal to be used in power generation.

Winter 2018/19 power prices also rose, gaining 4.6% in response to higher gas, European power and oil prices. German year-ahead power has set new 4½-year highs, with recent gains steadily driving forward UK power prices.

UK POWER BASELOAD

Weekly UK Insight 14 May 2018
Source: Reuters

Oil

$/bbl 4 May 18 11 May 18 Change
Brent Crude Jul 18 74.87 77.12 3.0%

Source: Reuters

Brent crude oil prices jumped to their highest level since 2014, up 3% to $77.12/bbl, after U.S. President Trump announced he was pulling out of the nuclear deal with Iran and re-imposing sanctions on the country.

Iran’s oil exports currently stand at more than 2.5m bpd or 3% of global demand. While there are six months before sanctions take full effect on Iran’s oil, some in the industry are predicting Iran’s exports could fall by more than 1m bpd, though others believe the fact that European powers have remained in the deal could dampen the impact.

BRENT CRUDE OIL – MONTH-AHEAD

Weekly UK Insight 14 May 2018
Source: Reuters

Exchange Rates & Economics

£/$ 4 May 18 11 May 18 Change
GBP/USD 1.3530 1.3541 0.1%

Source: Reuters

The Pound Sterling was broadly unchanged in value versus the U.S. Dollar as weak U.S. economic data offset the impact of the Bank of England’s decision not to increase interest rates.

As expected, the Bank of England voted (7-2) to leave policy unchanged. The economic projections in the BoE’s Inflation Report were broadly in line with those of February. Though current year growth was lowered to 1.4% (previously 1.8%) and inflation was set to fall more sharply, labour market strength was also noted.

EXCHANGE RATE – GBP/USD (£/$)

Weekly UK Insight 14 May 2018
Source: Reuters

Regulatory and Market News

Solar generation beats natural gas to contribute more power to the Grid than any other source

Britain got a glimpse of its green future as the sun provided more power to households than any other energy source over a rare, sunny holiday weekend.

Solar generation rose to 8.7 GW at 2 p.m. on Sunday, 6 May 2018, just shy of the record of 8.9 GW on 26 May 2017. Solar provided 26.9% of electricity supply, just beating natural gas, while coal output was zero, according to data from National Grid.

Britain’s energy mix is changing as renewables crowd out other forms of generation. Once a power industry mainstay, the nation went a record 75 hours without using coal at the end of April. UK solar capacity is predicted to grow by about 38% over the next five years.

Solar changes wholesale electricity prices in a peculiar way, causing surges at 9 a.m. and 9 p.m. as the sun fades and demand is strong and the grid needs supplies from natural gas and coal plants. Prices plummet in the middle of the day when solar panels deliver their highest yields.

Britain’s solar generation capacity is expected to increase from 13 GW now, to 16 GW by 2021 and then to 18 GW by 2023.

The difference between the solar output capability in 2013 and 2021 is equivalent to the country’s entire nuclear fleet powering up for a few hours every sunny afternoon.

 

LINK: Bloomberg – Solar leads over sunny weekend

Green Frog raises £100 million to build 11 new gas peaking plants across the UK

Green Frog has raised £100m in funding and will use the money to build 11 new gas peaking plants across Britain.

The company said the new generation units would take its total portfolio to 44 stations outputting some 750MW.

The addition of the new plant will help Green Frog to increase its presence in the traded UK energy markets and to secure more long-term contracts with National Grid, which is responsible for balancing the supply and demand of power in the UK.

It targets 2GW over the next five years and the new funding – from Lloyds, HSBC and NIBC Bank – contains a facility to spend a further £50m on new plant, which Green Frog said would equate to another 110MW.

Director Jeremy Taylor and fellow founder Mark Jones have built the company’s annual turnover to £250m over the last nine years, during which period the country’s generation mix has changed significantly.

Taylor said “The new plant will allow us to continue to solve the ever-increasing problems caused by intermittent renewable energy,” he added.

Now that the Medium Combustion Plant Directive is setting NOx emission limits Green Frog are changing their preferred fuel from diesel to natural gas.

LINK: Green Frog – £100m for 11 new peaking plants

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