Weekly UK Insight - 15 January 2018


p/therm 5 Jan 18 12 Jan 18 Change
Day-Ahead (DA) 52.50 53.00 1.0%
Feb 2018 52.91 55.97 5.8%
Q2-2018 45.44 46.38 2.1%
Summer 2018 44.73 45.58 1.9%
Winter 2018/19 52.94 54.40 2.8%

Source: Reuters

The UK’s Day-Ahead gas price rose 1% to 53 p/therm, as lower temperatures lifted demand, despite high flows from Norway keeping the system oversupplied.

Reuters have increased their forecast flows through the IUK pipeline to 40-45 mcm/d, given the increase in consumption due to lower temperature forecasts over the coming weeks.

Medium Range Storage (MRS) withdrawals are forecast at 181 mcm which should leave inventories at around 889 mcm by the end of January, relatively close to last year’s inventories. However, weather forecasts updates will play a role on the willingness of MRS to withdraw and the exact strategy operators are going to follow.

The Christophe de Margerie LNG tanker (roughly half the size of the largest tankers) is heading to Wales’ Dragon terminal. There is just enough spare capacity for the terminal to receive the cargo on 19 Jan without the need of a send-out.

The global market remains relatively tight with countries such as Poland and Turkey increasing take of Qatari LNG this year, reducing potential arrivals to the UK.

The seasonal gas price for Summer 2018 rose 1.9%, as combined supply risks create some uncertainty ahead of summer months.


Weekly UK Insight 15 January 2018
Source: Reuters


£/MWh 5 Jan 18 12 Jan 18 Change
Day-Ahead (DA) 51.02 49.50 -3.0%
Feb 2018 51.73 53.44 3.3%
Q2-2018 45.40 45.84 1.0%
Summer 2018 44.50 45.08 1.3%
Winter 2018/19 50.27 51.20 1.9%

Source: Reuters

Day-Ahead power prices dipped 3% to £49.50/MW, reflecting forecasts for strong wind power production in Britain, peaking around 8.2 GW.

Only two nuclear units are currently offline (Sizewell B-1 and B-2). These are both planned outages however further scheduled maintenance has boosted prices for Feb 2018.

Seasonal power prices for Summer 2018 rose, reflecting similar gains in the corresponding gas market, though significant losses in German power prices has limited prices movement in the UK forward market.


Weekly UK Insight 15 January 2018
Source: Reuters


$/bbl 5 Jan 18 12 Jan 18 Change
Brent Crude Mar 18 67.62 69.87 3.3%

Source: Reuters

Brent crude oil prices rose 3.3% to a 4-year high just below $70/bbl, after UAE oil minister and OPEC president Suhail al-Mazrouei said the cartel of 14 oil-producing nations that accounts for 40% of the world’s output, would continue to limit supplies.

Last week’s gains were also bolstered by official EIA reports of a surprise fall in U.S. oil stockpiles. The government body said crude inventories fell by almost five million barrels to 419.5 million barrels in the week to 5 January. U.S. production also fell by 290,000 bpd to 9.5 million.


Weekly UK Insight 15 January 2018
Source: Reuters

Exchange Rates & Economics

£/$ 5 Jan 18 12 Jan 18 Change
GBP/USD 1.3568 1.3727 1.2%

Source: Reuters

The Pound Sterling rose 1.2% against the US dollar last week as markets awaited the December consumer price indices and advance retail sales data due for release on Friday evening UK time.

The pound was also rebounding following news of German plans to allow UK financial services firms to access the single market as long as the UK pays into the EU budget. Chancellor of the Exchequer Philip Hammond and Brexit Secretary David Davis were in Germany last week drumming up support for a post-Brexit trade deal that included protections for the UK’s financial services firms.


Weekly UK Insight 15 January 2018
Source: Reuters

Regulatory and Market News

2017 sees more than half of electricity produced by low-carbon sources for first time ever

More than half of the electricity generated in the UK in 2017 came from low-carbon sources for the first time ever, according to new analysis by Carbon Brief, a website that tracks climate change and energy policy.

Renewables and nuclear provided more electricity than all fossil fuels combined, with wind generation alone supplying twice as much energy as coal.

It found that wind made a greater contribution to the country’s electricity needs than coal in every month apart from January. The share from low-carbon sources doubled between 2008 and 2017. Much of this was due to a greatly reduced amount of coal power as older plants have reached the end of their lives.

The UK has also added wind and solar power generation rapidly, as costs have fallen. Future development will increasingly be possible without the Government subsidies that have aided the industry’s development until now, Carbon Brief said.

The UK also passed a series of other milestones last year, including its first day without coal power since 1882, the most electricity produced from solar power at any one moment and the most wind power produced in a day.

Wind saw the biggest increase of any energy source, with supply up 31% for the whole of 2017 on 2016’s level, partly thanks to high wind speeds, Carbon Brief said.

Gas remained the largest single fuel source, generating around 40% of the UK’s needs, while nuclear accounted for around 20% of electricity supply.

Simon Evans, an analyst at Carbon Brief, said that further progress needs to be made on decarbonising the economy if the UK is to meet its commitment to cut emissions to 57% below 1990 levels by 2032.

“80% of UK emissions reduction in the past five years has come from burning less coal,” Mr Evans said.

“That puts into perspective how little progress has been made in other parts of the economy.”

The electricity sector has been the primary focus of renewable power generation as that power can then be used to revolutionise other sectors, for example through the electrification of transport.

Britain’s power system is the fourth cleanest in Europe and the seventh cleanest in the world, according to National Grid’s data.

LINK: Carbon brief – UK 2017

Dutch PM proposes further cut to Groningen gas production after 3.4 magnitude earthquake

The Dutch government will seek to further reduce production at the Groningen gas field due to the earthquakes it causes, Prime Minister Prime Minister said on Friday.

“We have been reducing production at Groningen since 2012, from above 50 bcm to 21 bcm, and the cabinet wants to cut further,” Rutte said.

After a 10% cut to an annual rate of 21.6 bcm of production for the year through October 2018, Rutte’s government had previously pledged that it would further reduce production to 20.1 bcm by 2020. However, a large 3.4 magnitude earthquake in Groningen last week has brought new urgency to the government’s production plans.

The government said after the earthquake it would seek a “substantial” reduction in production.

Economic Affairs Minister Eric Wiebes told newspaper Algemeen Dagblad on Friday that the government was looking at ways to further reduce production, but gave no time frame or specific target other than that a decision would be made before the end of March.

Field operator NAM and regulator SodM have both recommended a further cut to production in order to reduce the frequency and intensity of earthquakes in Groningen but have not specified how much they believe is possible.

Millions of Dutch households depend on Groningen gas for heating and cooking, and current production levels are close to what experts consider the minimum level possible while still guaranteeing supply.

“We’ve agreed with each other to achieve as much reduction in the gas production level as possible in the short term,” said Wiebes.

LINK: Reuters Groningen production cuts


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.