Weekly UK Insight - 28 May 2019


p/therm 17 May 19 24 May 19 Change
Day-Ahead (DA) 30.25 29.50 -2.5%
Jun 2019 29.83 29.93 0.3%
Winter 2019/20 54.20 53.85 -0.6%
Summer 2020 45.17 45.34 0.4%

Source: Reuters

The UK’s Day-Ahead gas price slid 2.5% to 29.50 p/therm, as the gas system was as much as 32 mcm/d oversupplied at certain points last week.

The oversupply was partly the result of strong LNG send-out from Britain’s LNG terminals, with South Hook, Dragon and Isle of Grain contributing around 65 mcm/d to UK gas system supply.

The return to service following scheduled annual maintenance of the Kollsnes processing plant increased pipeline imports from Norway by around 16 mcm/d. The Troll gas field remains offline but is expected to return on 31 May, adding a further 26 mcm/d to Britain’s total gas supply.

On the demand side, temperatures in Britain and Western Europe are trending upwards, reducing heating demand.

Winter 2019/20 gas prices fell 0.6% to 53.85 p/therm, driven lower by Brent crude oil and European coal prices.

Weaker short-term gas demand has allowed Britain’s gas storage operators to inject at a rate of 20 mcm/d, helping to refill the UK’s Medium Range Storage facilities ahead of the winter season.

Meanwhile, Russia’s energy minister Alexander Novak confirmed that the Nord Stream 2 pipeline project was still broadly on schedule to be completed in the next 6-9 months despite the U.S. threatening to impose sanctions.

Once completed the 1,200km gas pipeline will be able to supply up to 55 bcm of gas a year to Europe, doubling the capacity of the existing Nord Stream.


Weekly UK Insight 28 May 2019
Source: Reuters


£/MWh 17 May 19 24 May 19 Change
Day-Ahead (DA) 40.66 39.09 -3.9%
Jun 2019 40.62 40.81 0.5%
Winter 2019/20 57.23 57.43 0.3%
Summer 2020 48.39 48.74 0.7%

Source: Reuters

Day-Ahead power prices fell 3.9% to £39.09/MWh, in response to lower spot gas prices, mild temperatures and reasonably strong wind output forecast for the coming week.

Winter 2019/20 power prices rose 0.3% to £57.43/MWh, reflecting gains in carbon and German forward prices.

Meanwhile EDF’s 595MW Hunterston B8 nuclear reactor is now expected to return to service on 24th June, after a further delay. The 595MW Hunterston B7 reactor is now scheduled to return to operations on 31st July. The reactors have been offline since last year after routine inspections found cracks in its graphite core and have suffered several restart delays.

Expectations for further oil price gains also resulted in gains for the UK Summer 2020 power price.


Weekly UK Insight 28 May 2019
Source: Reuters


$/bbl 17 May 19 24 May 19 Change
Brent Crude Jul 19 72.21 68.69 -4.9%

Source: Reuters

Brent crude oil prices recorded their biggest weekly drop in six months, falling 4.9% week-on-week to $68.69/bbl, as the U.S.-China trade conflict dampened the demand outlook for crude oil.

However, if global inventories fall and demand remains strong, Kuwait’s oil minister Khaled al-Fadhel expects the oil market to be in balance towards the end of 2019.

Meanwhile, official data from the U.S. Energy Information Administration (EIA) showed that crude inventories rose by 4.7 million barrels last week, versus expectations for a decline of nearly 600,000 barrels. Rising U.S. shale oil production contributed to these gains.


Weekly UK Insight 28 May 2019
Source: Reuters

Exchange Rates & Economics

£/$ 17 May 19 24 May 19 Change
GBP/USD 1.2718 1.2712 0.0%

Source: Reuters

The value of the Pound Sterling was little changed versus the U.S. dollar and euro last week, after official economic data showed the UK economy was stable despite ongoing political turmoil.

UK unemployment dropped to its lowest rate since 1974, with earnings growth rising faster than inflation and weak productivity growth leaving companies so far accepting squeezed margins rather than raising prices.

The biggest news was that Prime Minister Theresa May announced that she will step down as the leader of the Conservative Party on 7th June, paving the way for a new prime minister.


Weekly UK Insight 28 May 2019
Source: Reuters

Regulatory and Market News

Ofgem confirms revisions to network price control methodology, but networks disappointed

Ofgem has announced it will move forward with plans to reduce the rate of return for energy network companies, close to 50% below its previous level. If the agreed methodology is applied today, Ofgem would set the allowed baseline return on equity at 4.3% in a cost of equity range of 4% to 5.6% – the lowest ever capital rate for energy network companies.

In line with this, the energy regulator has confirmed its methodology for calculating the network price controls between 2021 and 2026, called RIIO-2. A lower return on equity combined with a lower allowed return on debt are expected to reduce costs passed to consumers by £6 billion over the five years of the RIIO-2 price control period, compared to RIIO-1.

However, the final savings for consumers will depend on several other factors such as operating expenditure, which it will make a final decision on next year after companies have submitted their business plans.

The regulator says its new plans will support the “decarbonisation of power, heat and transport ” and a “smarter energy system” and each company’s environmental action plan will be taken into account when funding allowances are set.

Since 1990, network companies have invested around £100 billion in the Britain’s power grids, halving power cuts since since 2001 while customer satisfaction with local networks is said to have improved “significantly”.

In response to Ofgem’s announcement, National Grid said: “On cost of equity, we recognise Ofgem has made some corrections to its calculations and continues to consult on the outperformance wedge. We remain disappointed with the proposed range, which we believe does not fairly reflect the level of risk borne by networks.

ENA Chief Executive David Smith said: “These proposals, if implemented, will have damaging impacts on the energy networks’ ability to deliver the government’s plans for clean growth and the wider economy, undermining efforts to build a smarter, more efficient energy system for the public. Costs are down, power cuts are at record lows and the amount of renewable energy connected to the grid is at an all-time high. Ofgem needs to build on this track record.

“The approach needs to evolve in response to experience and the lessons learnt under the RIIO-1 price control. Central to this is ensuring that Britain’s energy networks are able to continue to attract significant levels of investment over the next decade and beyond, at lowest cost to the consumer.”

LINK: Ofgem – Network charging methodology

Orsted launches products for green gas, backed by guarantees of origins

For years, the vast majority of UK energy suppliers have given their customers the opportunity to be supplied with 100% renewable electricity. Now Danish energy supplier Orsted is expanding its offering with the addition of biogas and carbon neutral gas options – designed to suit the differing requirements and budgets of UK businesses of all sizes.

Ørsted’s biogas product comes with guaranteed certificates of origin, so businesses can report near-zero emissions from their gas consumption in greenhouse gas (GHG) reporting, making a significant contribution to carbon reduction.

For those businesses seeking a lower budget option, Ørsted can also provide a carbon neutral gas product. The carbon from a customers’ gas consumption is offset through investment in sustainable development projects, such as clean energy, water treatment and forest management projects, helping to counteract any carbon emissions. All projects are certified via The Gold Standard or the Verified Carbon Standard, which is important for auditing.

Ashley Phillips, Managing Director at Ørsted Sales UK, said: “Consumer demand is at an all-time high, with 73% of UK consumers stating a preference for products and retailers that use renewable energy – as such, it can help to provide competitive advantage when it comes to sustainability credentials.

LINK: Orsted – Green gas products


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