Weekly UK Insight - 22 July 2019

Gas

p/therm 12 Jul 19 19 Jul 19 Change
Day-Ahead (DA) 35.90 28.80 -19.8%
Aug 2019 35.83 29.09 -18.8%
Winter 2019/20 56.17 53.23 -5.2%
Summer 2020 49.56 47.08 -5.0%

Source: Reuters


The UK’s Day-Ahead gas price fell 19.8% to 28.80 p/therm as a ramp up in gas pipeline flows left the UK gas system around 27 mcm/d oversupplied, following the end of several unplanned Norwegian outages.

Meanwhile LNG send-out from Britain’s terminals is fairly steady at 10 mcm/d. There was one tanker delivery over the weekend with one more arrival expected in the next two weeks.

Forecast demand is fairly low at just 140 mcm/d, although seasonal normal demand is 108 mcm/d for this time of year.

Winter 2019/20 gas prices declined in the second half of the week, losing 5.2% week-on-week to 53.23 p/therm, as the previous week’s surge in prices left the forward UK gas market significantly overbought, prompting a modest sell off.

European gas storage levels are nearly 80% full. Europe’s total gas storage capacity is around 98 bcm, but the current rate of injections means that Europe is on schedule to have a massive of 13 bcm of surplus gas that can’t be placed in storage ahead of the winter gas season.

However, with the winter contract just over two months away, unexpected outages are likely to drive the market higher.

 

UK NBP

Weekly UK Insight 22 July 2019
Source: Reuters

Power

£/MWh 12 Jul 19 19 Jul 19 Change
Day-Ahead (DA) 44.03 39.56 -10.2%
Aug 2019 45.59 40.62 -10.9%
Winter 2019/20 60.67 58.39 -3.8%
Summer 2020 53.02 51.06 -3.7%

Source: Reuters

Day-Ahead power prices fell 10.2% to £39.56/MWh responding to boost in wind output forecasts for the coming week and driven lower by huge gas price losses.

Winter 2019/20 power prices slid 3.8% to £58.39/MWh, reflecting strong declines in UK gas, oil and European forward power prices.

However, gains in carbon and coal limited losses with further increases in UK power fundamentals likely to drive markets in the short and medium term.

UK POWER BASELOAD

Weekly UK Insight 22 July 2019
Source: Reuters

Oil

$/bbl 12 Jul 19 19 Jul 19 Change
Brent Crude Sep 19 66.72 62.47 -6.4%

Source: Reuters

Brent crude oil prices slid 6.4% week-on-week to $62.47/bbl, as U.S. and Iran signal they are open to negotiation.

Iran’s foreign minister said that the country would be open to negotiations if the U.S. gave it relief from sanctions.

Meanwhile, President Donald Trump said at a cabinet meeting on Tuesday that he’s not looking for regime change in Iran.

Oil prices may also be dropping because Hurricane Barry didn’t do as much damage as feared to oil infrastructure in the Gulf of Mexico, meaning that U.S. supply should continue to rise.

BRENT CRUDE OIL – MONTH-AHEAD

Weekly UK Insight 22 July 2019
Source: Reuters

Exchange Rates & Economics

£/$ 12 Jul 19 19 Jul 19 Change
GBP/USD 1.2573 1.2500 -0.6%

Source: Reuters

The value of the Pound Sterling edged lower versus the U.S. dollar and euro as voting in the Conservative leadership contest prepared to close on Monday, with the UK’s next prime minister set to be announced on Tuesday. The next occupant of Number 10 will be either Boris Johnson – regarded as the frontrunner – or Jeremy Hunt.

Chancellor Philip Hammond confirmed that he intends to resign as chancellor if Boris Johnson becomes prime minister.

Johnson has said the UK must leave the EU by the deadline of 31 October “do or die, come what may”. Mr Hunt has said he too is prepared to leave with no deal, but would accept a further delay, if required, to get a new withdrawal deal.

EXCHANGE RATE – GBP/USD (£/$)

Weekly UK Insight 22 July 2019
Source: Reuters

Regulatory and Market News

Ofgem to bring decarbonisation into remit in major policy shift

Ofgem’s remit is to be extended to cover carbon as part of sweeping changes outlined to better enable net zero. The regulator, alongside the government, also plans to streamline industry rules to better enable innovation and unlock new services.

Ofgem’s strategic narrative document cites an ambition to enable system wide flexibility. In other words, greater incentives for all domestic and business consumers to curb or increase consumption in an energy system that requires two-way participation.

Mary Starks, executive director of consumers & markets at Ofgem, said code reforms would create “lots more choices” for consumers by removing barriers to innovation.

“We want to see households participate in flexibility,” said Starks, which requires the whole market to be settled on a half hourly basis. Suppliers will be allowed to access half hourly data unless customers opt out, as data is critical to the functioning of a smart market.

In parallel, reforms to the retail market are intended to further enable innovation to support decarbonisation at lowest cost.

LINK: Ofgem – Policy change

ENA says ‘there is strong agreement across the energy sector on steps to go net zero’

There is strong agreement across the energy sector on the next steps to move towards the UK’s 2050 net zero target.

That’s according to the Energy Networks Association (ENA), which has published the responses gathered in its Future Worlds Impact Assessment consultation exploring how best to create a low carbon, smart grid across the country.

The move to a smarter grid is thought not only to help cut emissions but also enable possible savings estimated by the National Infrastructure Commission to be worth up to £8 billion a year by 2030.

The organisation suggests there is a general consensus closer coordination between Distribution System Operators (DSO) and the Electricity System Operator (ESO), which is thought to be a vital first step to delivering a smart grid at the best value for the public.

The ENA stresses the government’s net zero target is another opportunity for the networks to work with the whole energy industry, the regulator and the government to create the right regulatory conditions to bring about this transformation.

LINK: ENA

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