Weekly UK Insight - 26 September 2016


p/therm 16 Sep 16 23 Sep 16 Change
Day-Ahead (DA) 28.80 34.70 20.5%
October 16 33.47 37.02 10.6%
Winter 16/17 39.34 42.69 8.5%
Summer 17 36.50 39.47 8.1%

Source: Reuters

Seasonal gas prices for Winter 2016/17 and Summer 2017 both rose more than 8%, as the gas system struggled to respond to a sharp increase in demand and weaker gas supplies from Norway and LNG.

Both industrial and domestic demand increased by 21 mcm/day last week due to lower temperatures and increased gas-fired power generation. As we approach the colder peak winter period, we expect consumption to steadily rise.

On the supply side, UK continental shelf production was unable to respond to the increases in demand, and actually reduced towards the middle of the week due to a major maintenance outage at Norway’s Kollsnes gas processing plant. Additionally, with so few LNG cargoes on the horizon for the UK over the next two weeks, LNG send-out is forecast to drop from around 42 to 23 mcm/d this week.

Flexibility last week came from a reduction in exports to Belgium, while imports through the Dutch BBL pipeline and medium range storage withdrawals also supported the gas system.

A combination of storage withdrawals, a short system and pressure from oil prices driven by supply cut speculation has resulted in increases to both the forward prices and spot. With Rough Storage severely reduced at the moment we expect to see higher than normal price volatility, especially in October, which is traditionally more volatile anyway.


Weekly UK Insight 26 September 2016
Source: Reuters


Weekly UK Insight 26 September 2016
Source: Reuters


Weekly UK Insight 26 September 2016
Source: Reuters


Weekly UK Insight 26 September 2016
Source: Reuters
LNG Tanker Regas volume (mcm) Expected Arrival Date From Port
Aamira 162 26 September Qatar South Hook


£/MWh 16 Sep 16 23 Sep 16 Change
Day-Ahead (DA) 133.00 40.40 -69.6%
October 16 46.06 46.98 2.0%
Winter 16/17 45.97 48.71 6.0%
Summer 17 38.58 40.61 5.3%

Source: Reuters

Seasonal power prices for Winter 2016/17 rose 6.0% to £48.71/MWh, driven almost entirely by increases in the UK gas price. However, spot prices fell a whopping 71% back in line with normal levels, following the supply capacity constraint issue and associated price spike last week.

During the middle of the week, strong production from both wind generation and solar generation limited the impact of rising gas prices on the power price.

Heysham 2-8 is currently undergoing a planned statutory outage for scheduled maintenance, reducing nuclear capacity by around 615MW. However, there has been good reliability from the remainder of Britain’s nuclear fleet, with total nuclear capacity forecast to remain above 7,700MW for the next fortnight.


Weekly UK Insight 26 September 2016
Source: Reuters


$/bbl 16 Sep 16 23 Sep 16 Change
Brent Crude Nov 16 45.77 45.89 0.3%

Source: Reuters

Brent Crude was little changed week-on-week, after strong mid-week gains were offset by a sharp drop in oil prices on Friday.

Official EIA figures showed crude stocks in the US declined by 6.2 million barrels, despite expectations that there would be an increase of around 3.3 million barrels. Many OPEC nations, including Saudi Arabia, also publicly expressed their intention to exercise supply controls in order to regulate the price.

This contributed to the bullishness but Iran is yet to make any statement about changing its stance on this issue and without Iranian support, supply cuts by OPEC would likely fail to increase prices to the desired levels.


Weekly UK Insight 26 September 2016
Source: Reuters

Exchange Rates & Economics

£/$ 16 Sep 16 23 Sep 16 Change
GBP/USD 1.2995 1.2972 -0.2%

Source: Reuters

The value of the pound ended the week marginally weaker compared to the US dollar. The US Fed held interest rates between 0.25% and 0.5%, however policy-makers expect a rise by the end of the year.

The OECD has downgraded its forecast for UK economic growth in 2017 from 2% to 1%, citing risk to trade and business investment in the post-Brexit era. However, GDF growth in 2016 is forecast at 1.8%, as the ONS said the economy had stabilised.

Chief economist Joe Grice said: “Tax revenues are increasing as employment is at a record high and wages are slowly rising, while growing consumer spending is increasing VAT receipts and corporation tax – all positive indicators of economic growth.”


Weekly UK Insight 26 September 2016
Source: Reuters


/tonne 16 Sep 16 23 Sep 16 Change
EUA Dec 16 4.39 4.57 4.1%

Source: Reuters

European carbon prices soared to its highest level since early September on Friday, rising 4.1% week-on-week, boosted by the brief mid-week rally in crude oil prices and positive auction results. On Thursday, The EU Environment Committee is scheduled to discuss amendments to phase 4 of the EU ETS, starting in 2021.


Weekly UK Insight 26 September 2016
Source: Reuters


$/tonne 16 Sep 16 23 Sep 16 Change
API2 CIF ARA 2017 58.15 60.00 3.2%

Source: Reuters

European coal prices rose 3.2% last week, as hot weather across continental Europe boosted the demand for electricity used in air conditioning. However, the global coal oversupply is expected to return in the coming months, resulting in lower European prices.


Weekly UK Insight 26 September 2016
Source: Reuters

Regulatory and Market News

Parliamentary advisory group calls for state funded Carbon Capture and Storage

A UK parliamentary advisory group has called for state investment into Carbon Capture and Storage (CCS) technology to lower the country’s CO2 emissions.

The report suggests that CCS could be delivered at £85/MWh – cost-competitive in comparison to other existing low carbon generation, such as nuclear and offshore wind.

The agreed price for the approved Hinkley C nuclear power plant is £92.50/MWh, potentially falling to £89.50. Future offshore wind projects will be capped at £105/MWh, falling to £85/MWh for projects commissioned by 2026.

Weekly UK Insight 26 September 2016
Source: Telegraph

The UK Government has given the go-ahead for the construction of Hinkley Point C in Somerset after imposing “significant new safeguards” for future nuclear projects.

The group cited the added benefit of using the North Sea’s existing oil and gas infrastructure. There is “ample, safe and secure CO2 storage capacity is available offshore … and this represents the least cost form of storage at the scale required”, according to the report.

The benefits of developing a CCS industry now could be a boost to an industry that is likely to become more urgent in the future. However, for these cost reductions to take place, the advisory group believes the government needs to have a hand in it.

The report countered claims by the previous Cameron government, who shut down Britain’s world-leading CCS scheme last November. George Osborne pulled the plug abruptly on a £1bn “prize” with the Treasury citing high costs.

Decarbonising certain areas of the economy would be demanding, therefore developing the capability to safely store emissions that have been produced would provide the country with greater flexibility.

LINK: CCS Association decarbonisation report

Theresa May confirms the UK will ratify Paris climate agreement by end of year

Prime Minister Theresa May last week announced that the UK would continue to tackle climate change after leaving the EU, as she promised to ratify the Paris climate agreement by the end of 2016.

In her maiden speech to the United Nations General Assembly, May stated that the UK would add its support to the international effort to combat climate change.

“In a demonstration of our commitment to the agreement reached in Paris, the UK will start its domestic procedures to enable ratification of the Paris agreement, and complete these before the end of the year”, said May.

Business groups hailed the move for sending a clear signal for investment in the UK. In fact, environmental firm CPD claims more than 600 global businesses – many of which have significant UK operations – have already started to factor in the profound impacts the deal could have on their operations.

Customers expect the business community to play its part, with much of the spotlight being placed on the global supply chain, and the labour and environmental standards within it.

LINK: Independent report on Theresa May UN speech

EU Court rules Aberthaw coal power station breached emissions limit

The European Court of Justice ruled on Wednesday that the UK failed to enforce EU-set emissions limits for nitrogen oxide at RWE’s Aberthaw power plant.

The UK Government claimed that the coal-fired power station had permission to emit higher levels of nitrogen oxide because the plant was designed for welsh coal that is often harder to burn. However, the court ruled the generator had failed to take sufficient steps to reduce air pollution from the site.

RWE power station manager at Aberthaw Richard Little said: “It will mean our ability to use large amounts of Welsh coal is reduced somewhat earlier than might otherwise have been necessary”.

In spite of this, RWE do not believe that Aberthaw’s investment plans will be unduly affected and can continue operating into the 2020s.

LINK: UK fail to apply emissions cap at Aberthaw


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.