Weekly UK Insight - 15 July 2019

Gas

p/therm 5 Jul 19 12 Jul 19 Change
Day-Ahead (DA) 29.60 35.90 21.3%
Aug 2019 29.59 35.83 21.1%
Winter 2019/20 49.33 56.17 13.9%
Summer 2020 44.05 49.56 12.5%

Source: Reuters


The UK’s Day-Ahead gas price jumped 21.3% to 35.90 p/therm as various unplanned Norwegian outages left the UK gas system around 21 mcm/d undersupplied.

Britain’s total gas imports from Norway are capped at just 71 mcm, with ongoing maintenance at Norway’s giant Troll field lasting until 19th July, reducing flows by 9 mcm per day.

An ongoing outage at the Nyhamna gas processing plant was also reducing flows by 9 mcm/d and is expected to last until 27th Aug.

Meanwhile LNG send-out from Britain’s terminals is fairly steady at 10 mcm/d. Although there are just two LNG cargo deliveries expected over the next two weeks.

Aug-2019 gas also rose, tracking spot prices and as previous unplanned nuclear outages in France caused further concern that output could be hit by mandatory maintenance required by the regulator.

Winter 2019/20 gas prices surged on Thursday and Friday, gaining 13.9% week-on-week to 56.17 p/therm, as a series of trading triggers being hit started a trading frenzy, prompting further price gains.

Rough is scheduled to remain offline until October for commercial reasons. This is about 3.5mcm/d of production.

Despite expectations for surplus gas in NW Europe, Norwegian gas and French nuclear concerns were key drivers in forward gas prices. While higher oil, coal, carbon and European prices continued to drive winter prices.

UK NBP

Weekly UK Insight 15 July 2019
Source: Reuters

Power

£/MWh 5 Jul 19 12 Jul 19 Change
Day-Ahead (DA) 37.64 44.03 17.0%
Aug 2019 40.20 45.59 13.4%
Winter 2019/20 54.85 60.67 10.6%
Summer 2020 48.26 53.02 9.9%

Source: Reuters

Day-Ahead power prices rose 17.0% to £44.03/MWh responding to a drop in wind output forecasts for the coming week and driven higher by huge gas price gains.

Aug-2019 gas also rose after the previous unplanned outage at France’s 900MW Dampierre 2 nuclear power unit raised concerns of further cuts to nuclear output.

Winter 2019/20 power prices jumped 10.6% to £60.67/MWh, reflecting strong gains in UK gas, oil, coal, carbon and European forward power prices.

Carbon was the biggest driver, with the price of EUAs hitting an 11-year high above €28/tCO2.

UK POWER BASELOAD

Weekly UK Insight 15 July 2019
Source: Reuters

Oil

$/bbl 5 Jul 19 12 Jul 19 Change
Brent Crude Sep 19 64.23 66.72 3.9%

Source: Reuters

Brent crude oil prices rose 3.9% week-on-week to $66.72/bbl, after the U.S. government reported a significant decrease in crude oil inventories by 10 million barrels last week in the United States.

This combined with the threat of oil production disruptions in the Gulf as a tropical cyclone has caused major oil companies to evacuate personnel to varying degrees.

Geopolitical factors such as the continuing tensions in the Middle East and the ongoing sanctions on crisis-rocked Venezuela also contributed, but have had less of an overall effect on oil prices.

BRENT CRUDE OIL – MONTH-AHEAD

Weekly UK Insight 15 July 2019
Source: Reuters

Exchange Rates & Economics

£/$ 5 Jul 19 12 Jul 19 Change
GBP/USD 1.2523 1.2573 0.4%

Source: Reuters

The value of the Pound Sterling edged higher versus the U.S. dollar and euro. However, it is more likely that the UK currency will continue to struggle amidst political uncertainty and growing signs the Bank of England is becoming increasingly open to an interest rate cut over coming months.

The weaker U. S. dollar was also a factor in the wake of Federal Reserve Chairman Powell’s testimony to Congress that cemented expectations for the Fed to deliver a series of interest rate cuts to guarantee the U.S. economic expansion continues.

EXCHANGE RATE – GBP/USD (£/$)

Weekly UK Insight 15 July 2019
Source: Reuters

Regulatory and Market News

German Vow to Cancel Permits Sends Carbon to 11-Year High

European Union carbon permits rose to an 11-year high after Germany signalled it will protect the region’s emissions market by cancelling allowances to prevent a surplus accumulating as it closes coal power plants.

Germany may close about a third of its coal capacity in the next few years, and the government will request a “corresponding” withdrawal of permits issued in the system, Environment Minister Svenja Schulze said in an interview.

The remarks showed the strength of political support behind a program set in place to reduce a surplus in the market. Those efforts more than tripled the value of carbon allowances and increased the importance of the system in reducing emissions across the bloc.

“We’ve seen an encouraging rise in permit prices, so it’s no surprise that we see it as essential that the instrument continues to work as it should do,” Schulze said. “That’s logical. It makes no sense at all to implement an exit from coal here, only to export pollution licenses into the wider European system.”

Germany is considering expanding carbon pricing to other industries, including transport. Some politicions in Germany wants to increase the taxes levied on gasoline, diesel, heating oil and gas. The Green party is seeking a carbon price of 40 euros a ton, still 42% higher than current-market levels.

A panel of lawmakers is set to publish recommendations on Friday and Germany’s government may make a decision to expand carbon pricing as soon as next month, possibly in tandem with France.

LINK: Bloomberg – EUA carbon

MeyGen tidal turbine eclipses record with total of 17.5 GWh sent to UK grid

SIMEC Atlantis Energy says its MeyGen tidal turbine has now sent a record 17.5GWh of renewable electricity to the UK grid, eclipsing the previous export record of approximately 11GWh. MeyGen technology has exported more than 7GWh of clean power to the grid in 2019 alone.

It adds this year’s activities represent the longest period of uninterrupted generation from a multi-MW tidal turbine array ever achieved – total system availability so far this year sits at around 90% and reached as high as 98% during the second quarter.

It notes MeyGen has been successfully registered for the 2019 Contracts for Difference programme and says management is currently assessing bidding strategies.

CEO of SIMEC Atlantis Tim Cornelius said: “The MeyGen team is currently working on several initiatives to increase the installed capacity of the project so we can exploit fully the 398MW seabed lease. Full build-out would represent a capacity which is 50% higher than Dounreay, the largest nuclear station in the Highlands of Scotland.”

LINK: MeyGen Tidal update July 2019

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