Weekly UK Insight - 18 November 2019

Gas

p/therm 8 Nov 19 15 Nov 19 Change
Day-Ahead (DA) 38.00 39.15 3.0%
Dec 2019 41.94 41.03 -2.2%
Summer 2020 38.85 38.85 0.0%
Winter 2020/21 49.15 48.99 -0.3%

Source: Reuters

The UK’s Day-Ahead gas price climbed 3.0% to 39.15p/therm as forecasts for below seasonal normal temperatures for the next couple of days boosted expected demand for gas to be used in heating.

The UK system opened 14mcm/d undersupplied. This has been caused by stronger gas demand for heating, along with weaker pipeline flows from the UK Continental Shelf.

Despite falling temperatures this week, Dec 2019 gas prices fell 2.2%, reflecting an increase in expected LNG imports. As many as 6 tankers are scheduled to arrive over the next two weeks, totalling 476 mcm. This represents a 61% increase compared to this time last week.

The Summer 2020 gas price was unchanged at 38.85p/therm week-on-week, as European gas withdrawals made some headway into high gas storage levels, halting further declines.

Gas storage in the EU remains around 91% of full capacity, meaning the region is heading in the peak winter demand in a strong position.

Higher crude oil and coal prices also offset weaker carbon pricing. Although, lower European gas was slightly bearish for winter prices.

UK NBP

Weekly UK Insight 18 November 2019
Source: Reuters

Power

£/MWh 8 Nov 19 15 Nov 19 Change
Day-Ahead (DA) 46.19 46.93 1.6%
Dec 2019 48.10 47.02 -2.2%
Summer 2020 44.97 44.61 -0.8%
Winter 2020/21 52.41 51.97 -0.8%

Source: Reuters

Day-Ahead power prices rose 1.6% to £46.93/MWh, reflecting the increase in gas spot prices.

However, Dec 2019 power prices dropped 2.2% to £47.02/MWh tracking monthly gas and near-term carbon.

Summer 2020 power prices also fell 0.8% to £44.61/MWh in response to losses in the equivalent carbon market, although an increase in oil provided some support.

UK POWER BASELOAD

Weekly UK Insight 18 November 2019
Source: Reuters

Oil

$/bbl 8 Nov 19 15 Nov 19 Change
Brent Crude Jan 20 62.51 63.30 1.3%

Source: Reuters

Brent crude oil prices rose 1.3% last week to $63.30/bbl following news that China is cutting short term interest rates, something not seen since 2015.

It is thought this easing of monetary policy indicates China may be more open to making progress with the U.S. over trade talks.

These trade talks, along with the OPEC meeting taking place on 5th December could prove to be key short-term price drivers for oil. At the same meeting late last year, OPEC decided to support prices by cutting output by 1.2 million bpd. However, this time OPEC and Russia could discuss the possibility of deepening cuts.

BRENT CRUDE OIL – MONTH-AHEAD

Weekly UK Insight 18 November 2019
Source: Reuters

Exchange Rates & Economics

£/$ 8 Nov 19 15 Nov 19 Change
GBP/USD 1.2770 1.2899 1.0%

Source: Reuters

The Pound Sterling rose in value versus the U.S. dollar and euro after Nigel Farage boosted the chances of the Conservative Party achieving a Parliamentary majority on 12th Dec, by announcing the Brexit Party would not contest seats the Tories won in the 2017 General Election.

The Pound has entered a period in which it reacts positively to signs of a Conservative victory because it will ensure a Brexit deal could be passed through Parliament as soon as January, thereby putting to rest months of crippling uncertainty for UK businesses.

The UK economy has been craving certainty since the June 2016 EU referendum result and, regardless of political allegiances, the passing of a Brexit deal goes a long way in providing that certainty.

EXCHANGE RATE – GBP/USD (£/$)

Weekly UK Insight 18 November 2019
Source: Reuters

Regulatory and Market News

Businesses to complete ESOS Phase 2 compliance as 5th Dec 2019 deadline less than 3 weeks away

The Energy Savings Opportunity Scheme (ESOS) Phase 2 deadline is fast approaching, and qualifying businesses are being advised to make sure that they have completed their compliance.

ESOS is a mandatory requirement for UK organisations which have over 250 employees, or an annual turnover exceeding €50 million and a balance sheet exceeding €43 million.

To comply with ESOS, obligated companies are required to:

  • measure their total energy consumption including energy used by buildings, industrial processes and transportation; and
  • carry out audits by a registered lead assessor to identify cost-effective energy efficiency opportunities, or by implementing an energy management system and achieving certification to ISO 50001.
  • No matter which route an organisation chooses to meet its compliance obligations, it must notify the Environment Agency of its compliance by completing an online questionnaire here. The deadline to complete this is less than 3 weeks away on 5th December 2019.

The regulator may issue civil sanctions including financial penalties if an organisation does not meet the scheme’s obligations.

LINK: Environment Agency

Britain’s Grain LNG terminal sets European record for gas demand

Britain’s Grain liquefied natural gas (LNG) terminal exported the highest ever daily amount of gas from a European terminal to the UK grid this week.

Located on the Isle of Grain in the Thames estuary, it exported around 698GWh of gas, which is enough to supply to all of London and the South East.

The new record, which surpassed its previous record by more than 100GWh, is part of a broader trend that has seen rising capacity demand from key market players at the terminal over the last year, according to National Grid Grain LNG.

Grain LNG, which is currently able to provide up to 25% of the UK’s gas demand, offers market participants direct access to the UK’s National Balancing Point (NBP), one of the world’s leading gas trading hubs.

Nicola Duffin, Commercial Manager for Grain LNG said: “UK gas demand is actually only slightly higher than what we’d normally see this time of year. The record activity is due to a global LNG oversupply, which has seen significantly more cargoes head for North West Europe. As a result, we’ve seen a sharp increase in demand for capacity at the terminal.

“We expect utilisation will remain high throughout the winter and beyond. This is good news for UK consumers, who will benefit from more secure and more competitively priced gas supplies.”

LINK: LNG Industry – UK LNG record

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