Weekly UK Insight - 14 October 2019

Gas

p/therm 4 Oct 19 11 Oct 19 Change
Day-Ahead (DA) 27.75 24.25 -12.6%
Nov 2019 41.90 42.13 0.5%
Summer 2020 43.14 44.04 2.1%
Winter 2020/21 52.63 53.60 1.8%

Source: Reuters

The UK’s Day-Ahead gas price fell 12.6% to 24.25 p/therm as an increase in pipeline imports left the UK system around 5 mcm/d oversupplied. This follows increased imports from Norway, with planned maintenance at the Nyhamna gas plant coming to an end. This has brought 6 mcm/d of gas supply back online.

The South Hook terminal has scheduled as many as seven LNG tankers to be delivered over the next two weeks. Most of these are originating from Qatar, with a further two travelling from the USA.

Strong LNG imports means that less gas is needed from Norwegian pipelines during October. As a result, Langeled imports are flowing at just 8 mcm/d, far below the pipeline’s maximum capacity of 74 mcm/d.

Summer 2020 gas prices rose 2.1% to 44.04 p/therm, after an Iranian oil tanker was attacked near Saudi Arabia boosting the cost of oil-indexed gas prices (primarily from Russian gas and LNG cargoes).

However, UK and Continental European gas storage remains well stocks, so we anticipate that Summer 2020 and Winter 2020/21 prices could move lower in Q1-2020.

In UK news, the British government have approved plans by Drax to convert two of the North Yorkshire coal power production units in to gas. This follows conversion of 4 out of 6 coal power units at the plant into biomass. These two converted gas units will each have a capacity of up to 1.8 GW.

UK NBP

Weekly UK Insight 14 October 2019
Source: Reuters

Power

£/MWh 4 Oct 19 11 Oct 19 Change
Day-Ahead (DA) 41.79 35.18 -15.8%
Nov 2019 48.62 48.95 0.7%
Summer 2020 46.50 47.97 3.2%
Winter 2020/21 53.57 54.96 2.6%

Source: Reuters

Day-Ahead power prices fell 15.8% to £35.18/MWh, reflecting lower spot gas and higher offshore wind output.

Nov 2019 power prices edged 0.7% higher to £48.95/MWh, tracking gains in UK gas and coal, as temperatures gradually decline heading into the peak winter period.

Summer 2020 power prices rose 3.2% to £47.97/MWh as strong increases in European coal and carbon prices boosted the cost of coal-fired power generation.

UK POWER BASELOAD

Weekly UK Insight 14 October 2019
Source: Reuters

Oil

$/bbl 4 Oct 19 11 Oct 19 Change
Brent Crude Dec 19 58.37 60.51 3.7%

Source: Reuters

Brent crude oil prices posted gains of 3.7% last week, settling on Friday at $60.51/bbl after reports that a missile had hit an Iranian oil tanker in the Middle East. Iran said that the missile had travelled from Saudi Arabia’s direction.

OPEC’s chief also hinted at a deeper cut in the December meeting. On December 6, OPEC and non-OPEC members will meet to decide further course of action. If OPEC plus cuts production by another 0.5-1.0 million bpd, it could help tighten the oil market.

Without cuts, supply in Q1-2020 is expected to exceed demand by approximately 1 million bpd.

BRENT CRUDE OIL – MONTH-AHEAD

Weekly UK Insight 14 October 2019
Source: Reuters

Exchange Rates & Economics

£/$ 4 Oct 19 11 Oct 19 Change
GBP/USD 1.2332 1.2647 2.6%

Source: Reuters

The Pound Sterling surged in value versus the U.S. dollar and euro as hopes rose that a deal could be struck before the deadline later this month. Boris Johnson and the Irish Taoiseach, Leo Varadkar, agreed there was a “pathway to a possible Brexit deal”.

Sterling climbed to the highest level in three months against the US currency, briefly hitting $1.27, amid mounting optimism in the City, after the EU’s chief negotiator, Michel Barnier, said talks could progress to the next phase.

The Pound remains heavily below its level before the Brexit vote, by around 15%, in a reflection of the lingering risks posed by leaving the EU and the broader weakness in the UK and global economy.

EXCHANGE RATE – GBP/USD (£/$)

Weekly UK Insight 14 October 2019
Source: Reuters

Regulatory and Market News

National Grid predicts Brexit to have no impact on power capacity for winter 2019/20

Britain’s looming departure from the European Union will have no impact on its ability to meet energy demand this winter, despite the country remaining reliant on its portfolio of interconnectors, National Grid has said in its annual Winter Outlook for 2019/20.

Despite the looming Brexit deadline, increases in domestic generation mean there is a de-rated margin at underlying demand level of 7.8GW, ensuring fears over reliance on European interconnectors are unnecessary.

The Winter Outlook report reassures that regardless of the planned exit from the European Union, analysis “shows margins that are sufficient even in a scenario with no interconnector flows between GB and continental Europe; however, the market would need to attract regular LNG supplies to the UK.”

Under normal transmission system demand this winter, the peak is expected to be 46.4GW, lower than last year. As such, normalised demand can be met throughout the entire winter regardless of the interconnector scenario.

A further positive from the report is the continued reduction in emissions predicted from the energy market this winter, continuing a trend for “greener winters” of energy supply.

Last year had the lowest carbon intensity winter on record in terms of electricity generation. If weather conditions are similar this winter, we expect this positive trend to continue and anticipate more records being broken, including increasing levels of renewable generation.

National Grid remains positive about the changing nature of the energy network in the UK, and expect many more progressive shifts ahead.

The energy landscape is changing rapidly and there are fundamental changes to energy and society ahead – an increase in cleaner energy sources like wind and solar, and emerging technologies such as battery storage and electric vehicles.

Forecasting peaks in power demand has been becoming increasingly difficult in recent years thanks to a combination of Triad avoidance, the wholesale electricity market and battery storage.

The maximum Triad avoidance has increased still further this year, by 0.6GW from last years 2GW. This throws the future of Triads into some doubt, as the energy system advances, they may be being left behind.

LINK: National Grid – Winter Outlook 2019/2020

Shell Energy announces plans to purchase Hudson Energy’s business and domestic supply

Shell Energy has announced it plans to buy Green Star Energy, taking one of the largest suppliers outside the big six to almost one million customers.

Under the agreement, Shell Energy will buy Hudson Energy Supply UK, which supplies energy to 200,000 homes in the UK through the Green Star Energy brand, as well as 2,000 commercial properties.

Hudson’s supply is drawn entirely from renewable generation, while Shell Energy depends heavily on offsets for its renewable offerings.

In 2017 Shell acquired energy supplier First Utility and its 825,000 customers, amid an ongoing push into the clean power business. The following year it rebranded the service to Shell Energy and began sourcing 100 percent of its electricity from renewables via existing power-purchase agreements (PPAs) and offset certificates.

Shell Energy also offers customers access to smart home technology and EV charging infrastructure.

“As part of our ambition to build a significant U.K. retail energy business, this deal will take the number of Shell Energy Retail’s U.K. residential customers to just under 1 million and adds to Shell’s presence in the B2B market,” said Colin Crooks, CEO of Shell Energy Retail.

The deal is subject to regulatory approval, and is expected to be completed by the end of 2019. Until then, nothing changes and both companies will continue to operate separately.

LINK: Global News Wire – Sale of Hudson to Shell

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