Weekly UK Insight - 21 October 2019

Gas

p/therm 11 Oct 19 18 Oct 19 Change
Day-Ahead (DA) 24.25 28.00 15.5%
Nov 2019 42.13 41.61 -1.2%
Summer 2020 44.04 42.08 -4.5%
Winter 2020/21 53.60 51.40 -4.1%

Source: Reuters

The UK’s Day-Ahead gas price jumped 15.5% to 28.00 p/therm as an unexpected drop in gas pipeline supply from the UK Continental Shelf left the gas system around 23 mcm/d undersupplied, as a lightning strikes caused a temporary shutdown at the North Sea Forties, Culzean and Elgin Franklin gas fields.

South Hook and Isle of Grain terminals have scheduled as many as seven LNG tankers to be delivered over the next two weeks. These are originating from Qatar, the USA and Russia.

Meanwhile, Britain’s retiring long range gas storage facility, Rough, is scheduled to return with withdrawals beginning in November.

Medium Range Storage is injecting at 2 mcm/d but may need to withdraw gas as temperatures drop in order to balance the market if UKCS flows remain low.

Summer 2020 gas prices fell 4.5% to 42.08 p/therm, as high gas storage and the stronger Pound helped weaken forward UK gas prices. However, a weekend vote to delay approval of the UK-EU Brexit deal could result in a weaker Pound and therefore some price support over the coming week.

Lower European prices and crude oil also contributed to lower prices.

However, UK and Continental European gas storage remains well stocks at around 97% of total capacity, so we anticipate that Summer-2020 and Winter-2020/21 prices could move lower in Q1-2020.

UK NBP

Weekly UK Insight 21 October 2019
Source: Reuters

Power

£/MWh 11 Oct 19 18 Oct 19 Change
Day-Ahead (DA) 35.18 36.50 3.8%
Nov 2019 48.95 49.13 0.4%
Summer 2020 47.97 47.25 -1.5%
Winter 2020/21 54.96 54.08 -1.6%

Source: Reuters

Day-Ahead power prices rose 3.8% to £36.50/MWh, reflecting higher spot gas and carbon prices.

Nov 2019 power prices edged 0.7% higher to £49.13/MWh, as higher carbon prices boosted power markets despite the cheaper cost of gas in the fuel mix.

Summer 2020 power prices fell 1.5% to £47.25/MWh reflecting losses in UK and European gas markets, although the increase in EUA carbon pricing limited losses, providing price support to UK and European power markets.

UK POWER BASELOAD

Weekly UK Insight 21 October 2019
Source: Reuters

Oil

$/bbl 11 Oct 19 18 Oct 19 Change
Brent Crude Dec 19 60.51 59.42 -1.8%

Source: Reuters

Brent crude oil prices posted losses of 1.8% last week, settling on Friday at $59.42/bbl as concerns about China’s economy outweighed bullish signals from its refining sector, but losses were limited on hopes for progress towards a U.S.-China trade agreement.

China’s September refinery throughput rose 9.4% year-on-year, a signal that petroleum demand from the world’s biggest oil importer remained robust despite economic headwinds.

U.S. and Chinese trade negotiators are working on nailing down a Phase 1 trade deal text for their presidents to sign next month.

BRENT CRUDE OIL – MONTH-AHEAD

Weekly UK Insight 21 October 2019
Source: Reuters

Exchange Rates & Economics

£/$ 11 Oct 19 18 Oct 19 Change
GBP/USD 1.2647 1.2971 2.6%

Source: Reuters

The Pound Sterling rose in value versus the U.S. dollar and euro as the UK government and EU negotiators reached a deal before the deadline later this month.

However, gains may be reversed this week after MPs backed a move to delay approval of the Brexit deal. There was a lot of confidence going in to Saturday’s vote that there would be something a little bit more constructive so the Pound could move lower to reflect to reflect the delay.

Despite the delay, a hard Brexit is now highly unlikely. But of course, if we look at the medium term, there is still plenty of scope for volatility, there is still plenty of risk.

EXCHANGE RATE – GBP/USD (£/$)

Weekly UK Insight 21 October 2019
Source: Reuters

Regulatory and Market News

Global solar PV market set for spectacular growth over next 5 years

The installation of solar PV systems on homes and commercial buildings is set to take off over the next five years, transforming the way electricity is generated and consumed, according to the International Energy Agency’s latest renewable energy market forecast.

The report forecasts that the world’s total renewable-based power capacity will grow by 50% between 2019 and 2024. This increase of 1,200 gigawatts – equivalent to the current total power capacity of the United States – is driven by cost reductions and concerted government policy efforts. Solar PV accounts for 60% of the rise. The share of renewables in global power generation is set to rise from 26% today to 30% in 2024.

The expected growth comes after renewable capacity additions stalled last year for the first time in almost two decades.

The report highlights the three challenges that need to be overcome to speed up the deployment of renewables: regulatory uncertainty, high investment risks and system integration of wind and solar PV.

“As costs continue to fall, we have a growing incentive to ramp up the deployment of solar PV,” said Dr Birol. The cost of generating electricity from distributed solar PV systems is already below retail electricity prices in most countries. The IEA forecasts that these costs will decline by a further 15% to 35% by 2024, making the technology more attractive and spurring adoption worldwide.

LINK: IEA – Solar growth

National Grid open to giving up managing UK’s electricity

National Grid would “absolutely consider” relinquishing its role managing Britain’s electricity system to an independent body if policymakers decided it was the “right thing to do”, according to the company’s chief executive.

John Pettigrew said he would be likely to sit down with the UK government and Ofgem, Britain’s energy regulator, next year to look again at how the country’s electricity system is operated.

Since its privatisation in 1990, National Grid has been responsible for matching electricity supply with demand and keeping Britain’s lights on.

It faced questions over its management of the system after a blackout in August disrupted more than 1m homes and business in England and Wales, although National Grid maintains the incident was “extremely rare and unexpected”.

Mr Pettigrew said the system “operated as it was designed and it intended to” on August 9, when the blackout occurred.

However, Mr Pettigrew said: “at some point I think probably next year we will sit down with Ofgem and with the government and say ‘well is this [current arrangement] working? Is it right for customers and for the evolution of the energy sector? Or do we need to make further changes?”

LINK: FT – National Grid

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