Weekly UK Insight - 26 November 2018

Gas

p/therm 16 Nov 18 23 Nov 18 Change
Day-Ahead (DA) 67.00 66.50 -0.7%
Dec 2018 72.27 67.61 -6.4%
Q1-2019 71.69 68.02 -5.1%
Summer 2019 58.31 55.25 -5.2%
Winter 2019/20 66.37 63.34 -4.6%

Source: Reuters

The UK’s Day-Ahead gas price slid 0.7% to 66.50 p/therm as milder temperature forecasts and further LNG imports left the UK gas system 21 mcm/d oversupplied.

Temperatures are forecast to remain above seasonal normal levels for most of the next two weeks, which should result in lower gas demand to be used in heating.

There are no major Norwegian outages, meaning that gas imports through the Langeled and Vesterled pipelines are both close to capacity.

Summer 2019 gas prices fell 5.2% to 55.25 p/therm tracking losses in winter prices. Price declines in oil, coal, and European gas markets also contributed to falling forward UK gas prices.

Belgium remains on track to restart power production at two of its nuclear reactors in December, limiting gas demand in Northwest Europe to be used in power production.

Supply risks for early 2019 remain to some degree, however France and Belgium seem confident that outages will not pose an undue threat to supply during Summer 2019.

With crude oil prices falling under $60/bbl Russian gas prices – which remain linked to oil – are also on the decline, reducing the cost of gas across Continental Europe. Since the UK purchases gas from the Continent, this can help drive prices down.

UK NBP

Weekly UK Insight 26 November 2018
Source: Reuters

Power

£/MWh 16 Nov 18 23 Nov 18 Change
Day-Ahead (DA) 62.67 71.84 14.6%
Dec 2018 68.30 64.70 -5.3%
Summer 2019 57.50 55.58 -3.3%
Winter 2019/20 63.22 61.19 -3.2%

Source: Reuters

Day-Ahead power prices jumped 14.6% to £71.84/MWh after EDF Energy extended an outage at its Hunterston B-7 nuclear reactor in Britain until February 2019 as a result of ongoing testing.

Summer 2019 power prices fell 3.3% to £55.58/MWh, tracking lower prices in the equivalent gas contracts.

Several French and Belgian nuclear reactors are expected to return to service in the coming weeks, reducing the expectation that extended power generation outages will continue into next summer.

UK POWER BASELOAD

Weekly UK Insight 26 November 2018
Source: Reuters

Oil

$/bbl 16 Nov 18 23 Nov 18 Change
Brent Crude Jan 19 66.76 58.80 -11.9%

Source: Reuters

Brent crude oil prices fell 11.9% last week closing down at $58.80/bbl as oil supply, led by the United States, is growing more quickly than demand. The International Energy Agency expects non-OPEC output alone to rise by 2.3 million bpd this year, up from its forecast six months ago of 1.8 million bpd. Meanwhile, demand next year is expected to grow at a rate of 1.3 million bpd, compared with a forecast of 1.5 million bpd six months ago.

This has driven oil prices to their lowest level in more than a year, even as oil producers consider cutting production to try to stem a rising global surplus. OPEC is expected to start withholding output after a meeting planned for 6 Dec.

BRENT CRUDE OIL – MONTH-AHEAD

Weekly UK Insight 26 November 2018
Source: Reuters

Exchange Rates & Economics

£/$ 16 Nov 18 23 Nov 18 Change
GBP/USD 1.2837 1.2812 -0.2%

Source: Reuters

The value of the Pound Sterling slid just 0.2% versus the U.S. Dollar last week, on scepticism over the terms of the government’s Brexit deal. The UK is scheduled to leave the EU on 29 March 2019.

After 20 months of negotiations the 27 leaders of the EU have approved an agreement on the UK’s withdrawal and future relations – insisting it is the “best and only deal possible”. They said the deal – which needs to be approved by the UK Parliament – paved the way for an “orderly withdrawal”.

The UK Parliament is expected to vote on the deal on 12 December, but its approval is far from guaranteed.

EXCHANGE RATE – GBP/USD (£/$)

Weekly UK Insight 26 November 2018
Source: Reuters

Regulatory and Market News

National Grid confirms £850 million investment for Viking Link interconnector between UK and Denmark

National Grid has confirmed it is to invest £850M in the 1,400MW HVDC Viking Link interconnector between the UK and Denmark. It means contractors for the 760km interconnector between Bicker Fen in England and Revsing in Denmark, will be appointed next year. The project will cost a total of £1.1bn.

The project is a 50/50 joint venture between National Grid and Denmark’s Transmission System Operator (TSO) Energinet, which approved its share of the investment last year. The interconnector is due to be completed in 2023, but still needs to get all the required consents.

National Grid says the interconnector could earn it in the region of £100M a year once it is fully commissioned.

National Grid currently has three interconnectors under construction: Nemo Link between the UK and Belgium which will be finished next year, IFA2 between the UK and France due for completion in 2021 and North Sea Link between the UK and Norway which is on track for commissioning in 2021/22.

Electricity interconnectors can bring many benefits, including:

  • improved security of supply – by enabling the import of electricity from neighbouring countries;
  • lowering the cost of electricity through cross-border trade in electricity and shared use of the cheapest generation sources;
  • increased market for producers, such as wind power generators. Interconnectors increase opportunities to sell electricity, reducing surplus and adding value;
  • contributing to the development of the EU single market and optimising the use of resources across neighbouring countries.

LINK: Viking Link – National Grid confirms investment

Spark Energy becomes seventh supplier to go bust this year

Spark Energy has become the seventh energy supplier to cease trading this year. The company, which supplies gas and electricity to around 290,000 householders, said it will be unable to continue doing so “due to increasingly tough trading conditions” in the energy industry. However, customers’ energy supply will continue as normal and they have been advised not to switch providers yet.

The news comes just a couple of days after Extra Energy, which had around 108,000 domestic and 21,000 business customers, ceased trading. Other suppliers that ceased trading this year are: Future Energy, National Gas and Power, Iresa, Gen4U and Usio Energy.

Mary Starks, Ofgem’s Executive Director for Consumers and Markets said: “Energy customers with Spark is there is no need to worry, as under our safety net we will make sure your energy supplies are secure and your credit balance is protected.

“Ofgem will now choose a new supplier and ensure you get the best deal possible. … We will update you when we have chosen a new supplier, who will then get in touch about your new tariff. Although we have seen a number of supplier failures this year, our safety net procedures are working as they should to protect customers.”

Ofgem has proposed financial and customer service tests for new suppliers wishing to enter the market.

LINK: Ofgem – Spark Energy ceases trading

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