Weekly UK Insight - 1 April 2019

Gas

p/therm 22 Mar 19 29 Mar 19 Change
Day-Ahead (DA) 36.55 35.45 -3.0%
May 2019 35.35 34.61 -2.1%
Winter 2019/20 50.65 50.95 0.6%
Summer 2020 42.21 42.85 1.5%

Source: Reuters

The UK’s Day-Ahead gas price fell 3.0% to 35.45 p/therm as UK LNG terminals are anticipating a significant ramp up in deliveries into British ports, boosting available gas supply.

LNG operators are forecasting eight cargo deliveries into UK terminals over the next two weeks. The higher number of LNG arrivals means that total LNG send-out rose to 67 mcm/d from all UK terminals.

The UK gas system is around 10 mcm/d oversupplied as a result of rising imports via Norway’s Langeled with flows hitting 68 mcm/d, close to the pipelines maximum capacity (74 mcm/d).

However, National Grid’s forecast gas demand is expected at 228 mcm/d, just above the seasonal normal demand of 214 mcm/d, reflecting weather forecasts for a brief dip in UK temperatures boosting heating demand.

The Summer 2019 contract settled on 1 April 2019 at 36.20 p/therm. Attention now turns to the Winter 2019/20 contract, which will deliver on 1 Oct 2019.

Winter 2019/20 gas prices rose 0.6% to 50.95 p/therm, pushed higher by rising crude oil and carbon prices. Currency rates were also a big driver, as the weaker Pound Sterling made it more expensive to import gas into the UK.

Looking forward, further price weakness is expected as a ramp up in global LNG production and exports weighs on prices, driving UK gas prices lower. Overall LNG demand across north Asia remained weak freeing up supplies for European buyers.

UK NBP

Weekly UK Insight 1 April 2019
Source: Reuters

Power

£/MWh 22 Mar 19 29 Mar 19 Change
Day-Ahead (DA) 43.74 41.26 -5.7%
May 2019 41.83 41.46 -0.9%
Winter 2019/20 53.21 53.98 1.4%
Summer 2020 45.06 46.02 2.1%

Source: Reuters

Day-Ahead power prices slid 5.7% to £41.26/MWh, in response to higher output from wind farms and cheaper spot gas prices from Britain’s gas trading partners in Western Europe.

Summer 2019 power prices rose 1.4% to £53.98/MWh, tracking gains in UK gas and European power prices, as well as higher oil and carbon markets, which increased the cost of coal as an input fuel for power production.

UK POWER BASELOAD

Weekly UK Insight 1 April 2019
Source: Reuters

Oil

$/bbl 22 Mar 19 29 Mar 19 Change
Brent Crude May 19 67.03 68.39 2.0%

Source: Reuters

Brent crude oil prices rose 2.0% to $68.39/bbl, setting a new high for the year. The markets are being driven higher by OPEC-led production cuts and the U.S. sanctions against Iran and Venezuela, which have helped tighten the global supply and demand balance. These drivers have overshadowed concerns over a slowing global economy.

Q1-2019 saw the highest crude price rises since Q2-2009 with both quarters showing prices gaining about 40%. The strong gains last quarter have prompted U.S. President Trump to repeatedly call for OPEC to boost production to lower prices.

BRENT CRUDE OIL – MONTH-AHEAD

Weekly UK Insight 1 April 2019
Source: Reuters

Exchange Rates & Economics

£/$ 22 Mar 19 29 Mar 19 Change
GBP/USD 1.3209 1.3031 -1.3%

Source: Reuters

The value of the Pound Sterling fell versus the U.S. dollar as political confusion over Brexit deepened. UK MPs voted against all of the varied options on how the UK might leave the EU, even after Theresa May pledged to step down as prime minister in an effort to bring Conservative Eurosceptics behind her deal.

Prominent Brexiter Boris Johnson was quoted saying that Prime Minister May’s existing deal was “dead” added to the uncertainty. Theresa May is considering putting the proposals back to Parliament for a fourth vote after the terms of departure were rejected three times.

EXCHANGE RATE – GBP/USD (£/$)

Weekly UK Insight 1 April 2019
Source: Reuters

Regulatory and Market News

UK Triad demand lowest since 1995 as National Grid confirmed Triad dates for Winter 2018/19

National Grid has announced the confirmed Triad dates for Winter 2018/17, revealing that the combined demand during the UK’s triad periods this winter was at its lowest since 1995.

The Triads are the three half-hour settlement periods of highest British power demand between 1 November and the end of February. Triads can occur in any settlement period but are separated from each other by a minimum of 10 clear days.

System operator National Grid uses them as part of a scheme that incentivises industrial users to reduce their demand during triad periods.

Transmission charges for large businesses are based on these periods. However, National Grid only reveals them retrospectively – and failing to hit a Triad can be very expensive.

As a result, many firms curb consumption or switch to onsite generation over winter evenings to try and reduce their bills. Triad warnings typically result in an estimated 2GW reduction in national power demand when a peak period is deemed likely.

Date Half Hourly Period Demand
Thurs 22 Nov 2018 17:00-17:30 45.3GW
Mon 10 Dec 2018 17:00-17:30 45.0GW
Wed 23 Jan 2019 17:30-18:00 46.9GW

Combined demand over the three periods in winter 2018-19 was 137.15GW, down from 142.8GW last year and the lowest since the winter of 1994-95.

Energy efficiency and the decline of heavy industry have steadily eroded demand over the past 25 years.

LINK: National Grid – Triad Dates Winter 2018/19

Consumers hit with big increase in Climate Change Levy (CCL) rates from 1 April 2019

In the March 2016 Budget, the government announced it would scrap the Carbon Reduction Commitment Energy Efficiency Scheme (CRC) at the end of the 2018/19 compliance year. As a result, CCL would be the UK’s only carbon tax on energy bills.

The government is therefore increasing the CCL rate – which is an environmental tax on energy delivered to non-domestic users – from 1 April 2019 to recover the revenue from abolishing the CRC.

CCL increases:

  • from 0.583p/kWh on electricity bills to 0.847p/kWh from April 19, then back down to 0.811p/kWh from April 20
  • from 0.203p/kWh on gas bills to 0.339p/kWh from April 19 and up again to 0.406p/kWh from April 20

Any customers who are currently paying the full rate of CCL will see these increases unless they are eligible for exemption.

Exemptions can be awarded to consumers in energy intensive industries who have Climate Change Agreements (CCA) containing targets agreed with The Environment Agency for improving their energy efficiency or reducing carbon emissions.

Discounts for customers with CCAs are also increasing:

  • from 90% on electricity bills to 93% from April 19 back down to 92% from April 20
  • from 65% on gas bills up to 78% from April 19 and up again to 81% from April 20

LINK: BEIS – Published CCL rates

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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.