Weekly UK Insight - 18 March 2019


p/therm 8 Mar 19 15 Mar 19 Change
Day-Ahead (DA) 42.75 38.30 -10.4%
Apr 2019 41.95 37.58 -10.4%
Summer 2019 42.82 38.20 -10.8%
Winter 2019/20 56.34 51.57 -8.5%

Source: Reuters

The UK’s Day-Ahead gas price fell 10.4% to 38.30 p/therm as UK temperature continue to trend upwards, reducing gas demand to be used in heating. The UK gas system is broadly balanced, with National Grid’s forecast gas demand expected at 238 mcm/d, nearly in line with the seasonal normal demand of 237 mcm/d.

However, weaker UK and European wind power generation for the next week is forecast to increase demand for gas to be used in power generation.

On the supply side, five LNG cargos are scheduled to be delivered to British terminals within the next two weeks. Total LNG send-out is forecast fairly high around 63 mcm/d from all UK terminals.

The well supplied system also means that imports via Norway’s Langeled have dropped to 44 mcm/d, while gas flows from Netherlands via BBL remains at 0 mcm/d.

Summer 2019 gas prices fell 10.4% to 38.20 p/therm, pushed lower by falling global LNG prices.

The global gas oversupply continued to weigh on Asian LNG prices, which have now declined for 10 weeks in a row, driving UK gas prices lower. Overall LNG demand across north Asia remained weak with current LNG prices at the lowest level in 18 months and further losses are expected over the coming months.

However, we will continue to monitor Brexit talks, which is driving currency markets. Britain currently imports approximately 50% of its gas from other countries, meaning that the value of the Pound Sterling relative to the euro and U.S. dollar can make energy imports either cheaper or more expensive.


Weekly UK Insight 18 March 2019
Source: Reuters


£/MWh 8 Mar 19 15 Mar 19 Change
Day-Ahead (DA) 40.96 44.86 9.5%
Apr 2019 47.19 43.47 -7.9%
Summer 2019 48.15 44.59 -7.4%
Winter 2019/20 57.96 54.20 -6.5%

Source: Reuters

Day-Ahead power prices jumped 9.5% to £44.86/MWh, in response to lower output from both onshore and offshore wind farms.

Summer 2019 power prices slid 7.4% to £44.59/MWh, tracking losses in UK gas and European power prices, as well as lower coal and carbon markets, which reduced the cost of coal as an input fuel for power production.


Weekly UK Insight 18 March 2019
Source: Reuters


$/bbl 8 Mar 19 15 Mar 19 Change
Brent Crude May 19 65.74 67.16 2.2%

Source: Reuters

Brent crude oil prices rose 2.2% higher to $67.16/bbl lifted by OPEC-led output cuts as well as healthy demand for both crude and refined oil products.

Despite higher demand from customers, Saudi Arabia will be keeping its April crude oil exports at below 7 million bpd, a Saudi official revealed last week, signalling that OPEC’s biggest producer is set to do ‘whatever it takes’ to rebalance the market and support oil prices.

However, modest price forecasts from major bank analysts limited gains. Bank of America Merrill Lynch forecast Brent prices to average $70/bbl in 2019.


Weekly UK Insight 18 March 2019
Source: Reuters

Exchange Rates & Economics

£/$ 8 Mar 19 15 Mar 19 Change
GBP/USD 1.3015 1.3289 2.1%

Source: Reuters

The value of the Pound Sterling rose versus the U.S. dollar after further failures by Prime Minister Theresa May to get her Brexit deal approved by Parliament boosted expectations that Britain and the EU would agree a delay to Brexit.

A third Brexit package vote by MPs is scheduled to take place on 20th March. However, Chancellor Philip Hammond says this may not go ahead unless it has improved support from the DUP and Tory MPs.


Weekly UK Insight 18 March 2019
Source: Reuters

Regulatory and Market News

Drax gets government approval for 299MW gas peaking plant at Rookery South

Drax has been granted developmental consent by secretary of state Greg Clark for a 299MW open cycle gas turbine (OCGT) at Rookery South, a former clay pit near Stewartby, Bedfordshire.

The site is also earmarked for an energy from waste facility, the subject of long-running disputes and appeals.

It is one of four OCGTs the company intends to build to capitalise on the growing need for flexible power generation as renewables penetration increases. It also has the option to build a new additional large combined cycle gas turbine (CCGT) at Damhead Creek in Kent as part of recent deal with Iberdrola for £700m of Scottish Power’s generation assets.

“Given the structural shift in UK generation towards intermittent renewables we expect greater power price volatility, a growing need for system support services and increasing value from flexibility,” chief executive Will Gardiner said last month.

Drax said it hoped to be generating electricity by 2022 but this would be subject to it securing a capacity market subsidy from the government.

Britain’s capacity market — which pays generators to be available at times of high demand to ward off electricity shortages — has been suspended since last November pending a further investigation by European Union regulators.

LINK: UK Gov – Drax gas peaking plant

British energy consumers may have to foot £100m renewable scheme tab for failed energy suppliers

Energy suppliers may face another big Renewables Obligation (RO) bill after a spate of market exits. Energy research firm Cornwall Insight forecasts a potential shortfall in the RO Buyout Fund of up to £43.8m for 2018-19.

Under the Renewables Obligation, energy suppliers are obliged to buy a certain amount of power from renewable sources. If they do not, they pay into a buyout fund.

The cost of the RO is added to the customer bill and the suppliers then pay into the fund at the end of the year. The problem is, many of the 14 small suppliers that have gone bust since the start of last year spent the RO money.

The resulting shortfall is spread across all other suppliers. It was £58.6m light for the 2017-18 period, leading Ofgem last November to announce it was tightening rules for new market entrants. Within days, several more firms that owed millions in RO payments had ceased trading.

Solvent suppliers picked up that tab. Should Cornwall’s estimates prove correct, it will mean customers end up paying around £100m in total through their energy bills, effectively subsidising the unsustainable prices with which the failed suppliers gained customers.

That will add further pressure to smaller suppliers already struggling with cashflow issues, rising prices and tougher terms imposed by traders in the wake of market failures.

LINK: Energyst – £100m RO bill


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.