Weekly UK Insight - 22 October 2018

Gas

p/therm 12 Oct 18 19 Oct 18 Change
Day-Ahead (DA) 67.25 68.00 1.1%
Nov 2018 72.22 72.56 0.5%
Q1-2019 74.29 74.96 0.9%
Summer 2019 61.56 62.07 0.8%
Winter 2019/20 69.76 69.91 0.2%

Source: Reuters

The UK’s Day-Ahead gas price rose 1.1% to 68.00 p/therm as colder temperatures resulted in higher gas demand to be used in heating. The weather is expected to be colder for the end of October but the start of November may see temperatures go back to close to the seasonal norm.

Last week a surge of imports from Norway receded, leaving the system slightly undersupplied. Norwegian pipeline flows along the Langeled and Vesterled pipelines were down by one-third to 60 mcm/d combined.

Peak wind generation is expected to drop 2.5 GW from 4.4 GW on Wednesday, potentially boosting demand for gas-fired power generation.

Two LNG cargoes arrived at British terminals over the weekend. However, there are no further deliveries planned during October.

Summer 2019 gas prices increased 0.8% to 62.07 p/therm week-on-week, tracking higher prices for global coal as well as a significant drop in European gas prices.

The supply and demand of Northwest Europe’s gas market is looking more comfortable ahead of the winter as strong gas injections have seen gas storage levels nearly caught up with historic levels.

However, winter supply risks continue to drive forward price movement as the threat of worker’s strikes at French gas terminals and coal-fired power stations may continue on until Summer 2019.

UK NBP

Weekly UK Insight 22 October 2018
Source: Reuters

Power

£/MWh 12 Oct 18 19 Oct 18 Change
Day-Ahead (DA) 60.30 63.87 5.9%
Nov 2018 68.36 68.77 0.6%
Q1-2019 69.17 69.59 0.6%
Summer 2019 58.60 59.00 0.7%
Winter 2019/20 63.89 63.79 -0.2%

Source: Reuters

Day-Ahead power prices rose 5.9% to £63.87/MWh as a forecast drop in UK wind speeds should reduce power output, while higher spot gas and coal prices increase the cost of power production.

Summer 2019 power prices lifted 0.7% to £59.00/MWh tracking seasonal losses increases UK gas market, while European power prices and coal also fell boosting the cost of input fuels to be used in power generation.

Ongoing Brexit uncertainty and lower-than-expected UK inflation data also weakened the Pound, making interconnector power imports from Continental Europe more expensive.

UK POWER BASELOAD

Weekly UK Insight 22 October 2018
Source: Reuters

Oil

$/bbl 12 Oct 18 19 Oct 18 Change
Brent Crude Dec 18 80.43 79.78 -0.8%

Source: Reuters

Brent crude oil prices slid 0.8% last week, closing at $79.78/bbl, after official U.S. government data showed crude oil stockpiles rose by 6.5 million barrels last week, almost triple what analysts had forecast.

However, oil prices were supported as rising diplomatic tensions surrounding the disappearance of journalist Jamal Khashoggi is leading to fears Saudi Arabia could cut off its oil supply in retaliation. Saudi Arabia could cut as much as 500,000 bpd of crude production “as a warning shot” to discourage U.S. sanctions.

BRENT CRUDE OIL – MONTH-AHEAD

Weekly UK Insight 22 October 2018
Source: Reuters

Exchange Rates & Economics

£/$ 12 Oct 18 19 Oct 18 Change
GBP/USD 1.3154 1.3070 -0.6%

Source: Reuters

The value of the Pound Sterling fell 0.6% versus the U.S. Dollar last week on weaker-than-expected UK inflation. September’s annualised inflation rate was recorded at 2.4% versus forecasts of 2.6%, pushed down a pound already weakened by reports that Britain would not seek to extend the Brexit transition period.

Prime Minister Theresa May is expected to tell the Commons on Monday that 95% of the Brexit withdrawal agreement and its protocols are settled as she seeks to demonstrate to MPs in her own party that she is making headway in Brexit talks.

EXCHANGE RATE – GBP/USD (£/$)

Weekly UK Insight 22 October 2018
Source: Reuters

Regulatory and Market News

UK winter power outlook comfortable on reduced peak demand forecast

There are good levels of surplus UK electricity generation for winter 2018/19 with peak demand expected to be 2.5 GW or 5% lower than last winter, transmission system operator National Grid said in its annual Winter Outlook publication.

Winter peak demand was put at 48.2 GW, down from 50.7 GW forecast and actual last winter, with the lowest level of operational surplus expected at the end of October and in the first half of December.

De-rated capacity margins have improved year on year to 7.1 GW, the TSO said, up 0.9 GW on the forecast margin for winter 2017/18.

As a percentage of underlying demand, the margin equated to 11.7%, with a “loss of load expectation” of just 0.001 hours per year — compared with the requirement on National Grid to limit LOLE to three hours.

The TSO said it saw a greater role for coal-fired generation this winter as a result of the relative strength in gas prices. Based on current fuel prices, the TSO expected coal to run above the least efficient gas stations in the generation merit order “although this could change if it gets colder”, it said in its annual Winter Outlook publication.

National Grid said it expected the 1 GW Nemo Link to Belgium to come into commercial service late January, with flows likely to fluctuate during a commissioning period. Full commercial operation was expected in April.

Forward electricity prices in Continental Europe were expected to be lower than in Great Britain, with a net flow of power into Great Britain expected peak demand periods, although occasionally not at full import.

Outages in the Belgian nuclear fleet, however, could increase Continental prices and create uncertainty on interconnector flow direction, National Grid said.

LINK: National Grid – Winter Outlook 2018/19

Five CfD generators demonstrate their commitment to clean projects in passing key milestone

Five generators representing more than 95% of the second Contracts for Difference (CfD) allocation round have passed the ‘Milestone Requirement’ stage.

The Milestone Requirement must be met within a year of the CfD being signed – it requires a generator to demonstrate their commitment to delivering the project by either incurring actual spend equal to a tenth of the expected total or by proving financing and contracts are in place.

The CfD projects that have recently passed their Milestone Requirement include the 860MW Triton Knoll Offshore Wind Farm, the 1.4GW Hornsea Project 2 Wind Farm, as well as a number of biomass and Advanced Conversion Technology gas projects.

The Low Carbon Contracts Company (LCCC) has congratulated these firms and suggested the wide success shows the CfD continues to be successful in securing investment into new build clean power across the UK.

Two projects, the biomass-fired Grangemouth Renewable Energy Plant and the waste-processing Station Yard, have failed to make sufficient progress and have been cancelled, while a further three continue to be reviewed.

LINK: LCCC – milestone requirement

Download

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.