Weekly UK Insight - 20 May 2019

Gas

p/therm 10 May 19 17 May 19 Change
Day-Ahead (DA) 36.35 30.25 -16.8%
Jun 2019 32.54 29.83 -8.3%
Winter 2019/20 54.25 54.20 -0.1%
Summer 2020 44.45 45.17 1.6%

Source: Reuters

The UK’s Day-Ahead gas price fell 16.8% to 30.25 p/therm, as the gas system was as much as 30 mcm/d oversupplied at certain points last week.

The oversupply was largely the result of strong LNG send-out from Britain’s LNG terminals, with South Hook, Dragon and Isle of Grain contributing between 73-94 mcm/d to UK gas system supply.

The gas supply-demand balance wasn’t significantly hindered by scheduled annual maintenance outages to Troll gas field and Kollsnes processing plant. According to Norway’s gas operator Gassco, flows will increase around 40 mcm/d over the coming week, although the outage will limit gas imports into the UK by around 46 mcm/d until 31 May.

On the demand side, temperatures are rising in Britain and Western Europe, reducing heating demand.

Winter 2019/20 gas prices fell 0.1% to 54.20 p/therm, driven lower by coal prices.

Meanwhile, Gazprom has revealed that there could be slight changes to the schedule of Russia’s Nord Stream 2 gas pipeline project to Germany. Delays in obtaining permits from Denmark could cause the launch of the project to be delayed from late 2019 to 2020.

Although the pipeline would provide an additional route for gas into Europe, Nord Stream 2 has come under fire from the United States and several eastern European, Nordic and Baltic Sea countries which fear it will increase the European Union’s reliance on Russian gas.

UK NBP

Weekly UK Insight 20 May 2019
Source: Reuters

Power

£/MWh 10 May 19 17 May 19 Change
Day-Ahead (DA) 44.91 40.66 -9.5%
Jun 2019 42.67 40.62 -4.8%
Winter 2019/20 57.54 57.23 -0.5%
Summer 2020 48.16 48.39 0.5%

Source: Reuters

Day-Ahead power prices fell 9.5% to £40.66/MWh, in response to lower spot gas prices, mild temperatures and strong wind output forecast for the coming week.

Winter 2019/20 power prices fell 0.5% to £57.23/MWh, tracking weaker coal, gas, carbon and German forward prices. The delayed return of EDF’s Hunterston B8 nuclear reactor to 30 May limited losses.

However, expectations for further oil price gains boosted the Summer 2020 price.

UK POWER BASELOAD

Weekly UK Insight 20 May 2019
Source: Reuters

Oil

$/bbl 10 May 19 17 May 19 Change
Brent Crude Jul 19 70.62 72.21 2.3%

Source: Reuters

Brent crude oil prices rose 2.3% week-on-week to $72.21/bbl, as Saudi Arabia’s energy minister said there was consensus among OPEC and allied producers to drive down crude inventories.

Forecasts indicate that the price of oil – which has already risen by 40% this year to more than $72 a barrel – could go much higher. Saudi Arabia needs an oil price greater than $80 a barrel in order to balance its budget.

OPEC’s next meeting is scheduled for June, with the implications for oil of U.S. sanctions against Venezuela, Iran and Libya (who possess a combined crude oil production capacity of 3.5 million bpd) high on the agenda.

BRENT CRUDE OIL – MONTH-AHEAD

Weekly UK Insight 20 May 2019
Source: Reuters

Exchange Rates & Economics

£/$ 10 May 19 17 May 19 Change
GBP/USD 1.2999 1.2718 -2.2%

Source: Reuters

The value of the Pound Sterling fell versus the U.S. dollar and euro last week, in response to ongoing Brexit uncertainty. Theresa May is preparing to put the final touches on her “bold offer” to MPs in a fourth and final attempt to get her Brexit deal through parliament.

The Prime Minister is preparing to hold talks with senior ministers that she hopes will see them sign off on a supposedly enticing new package of measures to be included in her much-maligned withdrawal agreement, which has already been rejected three times by MPs.

Few in Westminster expect any changes to the deal to be enough to win the cross-party support it needs to pass, which would leave Mrs May in a vulnerable position.

EXCHANGE RATE – GBP/USD (£/$)

Weekly UK Insight 20 May 2019
Source: Reuters

Regulatory and Market News

Labour announces plans to nationalise Britain’s energy networks, but industry disputes benefits

The Labour Party has announced plans to take National Grid and regional networks out of the hands of private shareholders and into public ownership.

Shadow Energy Secretary Rebecca Long Bailey claims privatisation of the UK’s energy grid is “ripping off customers”, with 25% of the energy bills paid out to network companies and more than £13 billion paid out in dividends to shareholders over the last five years.

Labour intends to create a National Energy Agency that will own and maintain transmission infrastructure – replacing National Grid – and ensure access to heat and electricity is a “human right”.

Under the party’s ‘Bringing Energy Home’  plans, the existing distribution network operators (DNOs) will also be replaced by 14 Regional Energy Agencies (REAs), responsible for decarbonising electricity and heat, ensure every household can access affordable energy, reduce fuel poverty as well as take responsibility for rolling out the UK’s electric vehicle (EV) charging infrastructure and create jobs.

The Labour Party says when the grid is taken into public ownership, it will exchange shares for bonds, which it claims is “cost neutral” to the public purse “because the government will exchange a bond for a profitable asset”.

It also claims household bills will fall “as a result of billions not being lost in dividends and excessive high interest payments”.

However, Energy Networks Association dispute Labour’s claims, aguing that the proposals will fail to deliver Labour’s objectives and also be extremely costly to the British public.

The ENA says that the companies responsible for grids are already delivering significant investment to Britain’s power grid system, resulting in record levels of clean energy, lower costs and fewer power cuts than ever before.

At a time when there are constraints on public spending the ENA has questioned where the money would come from to pay for and provide future investment in these vital assets.

ENA Chief Executive David Smith said: “Under state ownership the energy networks were more expensive and less reliable. Since privatisation in 1990 network costs to the bill-payer have fallen by 17%. At the same time that costs have fallen, reliability has improved: the public have experienced 60% fewer power cuts while their length has been reduced by 84%.”

LINK: Labour – Plans to nationalise UK’s energy networks

Electricity imports at record high as new link allows cheaper deal

Britain is importing a tenth of its electricity needs for the first time on record after the start of a new subsea power link with Belgium.

The Nemo link, which runs from Richborough in Kent to Zeebrugge and which started operating at the end of January, has increased the capacity of Britain’s electricity connections with mainland Europe by a third.

Britain currently have five interconnectors: 2 GW to France, 0.5 GW each to Northern Ireland and the Republic of Ireland, and 1 GW each to the Netherlands and Belgium.

Imports hit record highs in February and March as traders used the new interconnector as well as existing links with France and the Netherlands to buy cheap electricity from the Continent.

Europe’s electricity mix is diverse, ranging from fully-renewable through to heavy reliance on coal and gas

Imports from Belgium are mostly nuclear and gas, and are similar in their carbon content to British electricity (183 g/kWh in Belgium versus 227 g/kWh here, averaged over 2017–18).

Belgian electricity is much cleaner than imports from the Netherlands or Ireland, which primarily burn gas and coal. France is our cleanest connected neighbour, with 90% of their electricity coming from nuclear and renewables.

More links to France and Ireland are in the pipeline, followed by longer cables to Norway, Denmark and Germany. Norway has one of the cleanest electricity systems in the world, as their abundant mountain ranges mean they run on 95% hydro power. Denmark and Germany are renowned for their large shares of wind power, but these are backed up almost exclusively by coal, or its even dirtier cousin, lignite.

LINK: Drax – Insights Q1-2019

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