Weekly UK Insight - 18 February 2019

Gas

p/therm 8 Feb 19 15 Feb 19 Change
Day-Ahead (DA) 48.55 46.90 -3.4%
Mar 2019 48.05 47.64 -0.9%
Summer 2019 45.88 46.30 0.9%
Winter 2019/20 58.04 58.98 1.6%

Source: Reuters

The UK’s Day-Ahead gas price fell 3.4% to 46.90 p/therm as a result of UK temperature forecasts for the rest of February well above seasonal normal levels. Meanwhile, steady pipeline flows and continued LNG deliveries supported supply.

Additionally, UK wind power generation was expected to increase last weekend, reducing demand for gas to be used in power generation.

National Grid’s forecast gas demand is expected at 247 mcm/d, lower that the seasonal normal demand of 283 mcm/d.

Three LNG tankers arrived at UK terminals on Friday and Saturday, with one more scheduled for delivery within the next two weeks, supplying Britain’s gas network during the second half of February. Total LNG send-out is expected at 45 mcm/d from all UK terminals.

Summer 2019 gas prices increased in value for the first time in four weeks, gaining 0.9% to 46.30 p/therm reflecting gains in oil and coal prices, as well as a weaker Pound Sterling that made gas imports into Britain more expensive.

The weekly increase in forward gas prices is forecast to be short-lived as falling Asian LNG prices are capping the global market price for gas, pushing UK prices lower.

UK NBP

Weekly UK Insight 18 February 2019
Source: Reuters

Power

£/MWh 8 Feb 19 15 Feb 19 Change
Day-Ahead (DA) 47.52 49.08 3.3%
Mar 2019 52.06 50.52 -3.0%
Summer 2019 50.20 49.52 -1.4%
Winter 2019/20 58.84 58.83 0.0%

Source: Reuters

Day-Ahead power prices rose 3.3% to £49.08/MWh, tracking European spot power prices.

Summer 2019 power prices declined 1.4% to £49.52/MWh, tracking a sharp drop in carbon prices. A decline in carbon allowances makes the overall cost of burning gas and coal for power generation less expensive, reducing the overall cost of UK electricity.

Hinkley Point B-8 is currently the only UK nuclear reactor offline for an unplanned outage. However, the unit is scheduled to return to service on 24th February.

UK POWER BASELOAD

Weekly UK Insight 18 February 2019
Source: Reuters

Oil

$/bbl 8 Feb 19 15 Feb 19 Change
Brent Crude Apr 19 62.10 66.25 6.7%

Source: Reuters

Brent crude oil prices jumped 6.7% to $66.25/bbl last week, hitting their highest level in four months, lifted by OPEC-led supply cuts, U.S. sanctions on Iran and Venezuela, and hopes that the China-U.S. trade dispute may soon end.

Oil prices have been bolstered by a tightening market because of supply cuts organized by OPEC and some non-affiliated major producers like Russia. The group of producer countries agreed late last year to cut output by 1.2 million bpd to prevent a large oversupply from growing.

According to OPEC, 2019 oil demand growth is forecast to rise to 100 million bpd, from 98.76 million last year. However, much uncertainty continues regarding trade matters between the US and China.

BRENT CRUDE OIL – MONTH-AHEAD

Weekly UK Insight 18 February 2019
Source: Reuters

Exchange Rates & Economics

£/$ 8 Feb 19 15 Feb 19 Change
GBP/USD 1.2947 1.2889 -0.4%

Source: Reuters

The value of the Pound Sterling declined versus the U.S. dollar with ongoing uncertainty over Brexit.

U.S. President Trump ruled out the possibility of meeting the Chinese Premier before the trade-truce deadline of 1st March. However, Trump is also considering pushing back the deadline for the imposition of higher tariffs on Chinese imports by 60 days.

EXCHANGE RATE – GBP/USD (£/$)

Weekly UK Insight 18 February 2019
Source: Reuters

Regulatory and Market News

Aberdeenshire Councillors approve 1,400MW power interconnector between UK and Norway

Councillors have given the green light to a sub-sea electricity cable project linking Scotland with Norway. The NorthConnect interconnector will provide an electricity transmission link with a capacity of 1,400MW.

The 665km power link will be routed under the North Sea from Simadalen in Norway to Aberdeenshire, Scotland.

Grid operators are confident the development of increased interconnector capacity will bolster the UK’s clean energy efforts, as improved links with the European energy market allow both sides of the Channel to better balance their grids as increased levels of variable renewable power capacity come online.

The Scottish Government aims to reach target quotas for the use of renewable energy, while the European Commission has a stated objective to reach an interconnection target of 15% by 2030.

Commenting Richard Blanchfield, the NorthConnect Permitting manager in the UK, said: “I am delighted that the NorthConnect Project has passed another significant milestone on its journey to becoming a reality.

“The cables will be able to transport energy in both directions, monitor and respond instantaneously to meet the demands of either energy market and, crucially, be able to be called upon in the event of a ‘black start’ situation, ensuring our lights stay on.

The interconnector, due for completion in 2024, will bring hydropower from Norway while Scotland will export its abundant wind resources.

Last month, the 1,000MW Nemo Link connecting the UK with Belgium entered commercial operation.

Construction is also underway on the 1,000MW IFA2 project to France that is expected to be operational in 2020. In addition, National Grid recently approved plans for the 1,400MW Viking Link between UK with Denmark.

LINK: NorthConnect – Scottish approval

EU ETS carbon allowances: one month to early submission

UK companies that have to take part in the EU Emissions Trading Scheme (EU ETS) have until 11 March to report on emissions in 2018 and until 15 March to surrender allowances for the year.

The compressed deadlines – brought forward from 31 March and 30 April, respectively – were agreed because the original deadlines fell after the UK’s exit date from the EU.

However, questions remain over carbon taxes in the event of a no-deal Brexit. ETS participants do not know at this stage whether they will have to have allowances for the first part of 2019 (as would apply in the event of a deal and continued engagement with the EU ETS). Although the government has indicated that it would institute a £16/t tax on carbon emissions in the event of a no-deal Brexit, it is not clear how that tax level has been calculated, and market participants want understanding of whether and how it would be adjusted over time.

LINK: New Power – EU ETS deadlines 2019

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