Weekly UK Insight - 28 October 2019


p/therm 18 Oct 19 25 Oct 19 Change
Day-Ahead (DA) 28.00 28.25 0.9%
Nov 2019 41.61 39.95 -4.0%
Summer 2020 42.08 40.63 -3.4%
Winter 2020/21 51.40 50.60 -1.6%

Source: Reuters

The UK’s Day-Ahead gas price edged 0.9% higher to 28.25 p/therm as brief outages at both the Forties gas pipeline system and Kvitebjørn gas field left the UK gas system slightly undersupplied at the end of last week.

Nov 2019 gas prices fell 4.0% as strong LNG imports and comfortable gas stockpiles means Britain is expected to be well supplied during the start of the peak winter season, despite falling temperatures.

Troll maintenance reported on 1-6 Nov will cut the field availability by 12mcm/d, however, this outage is not expected to have a visible impact on the actual output.

South Hook and Isle of Grain terminals have scheduled as many as 10 LNG tankers to be delivered over the next two weeks, originating from Qatar, Russia and the USA.

Summer 2020 gas prices fell 3.4% to 40.63 p/therm, as high gas storage and comfortable imports helped weaken forward UK gas prices. However, uncertainty over MPs reviewing for the Government’s Brexit deal could have a material impact on the value of the Pound, making energy imports more expensive if this causes a delay.

Gas storage in the EU region remains around 97% of full capacity, while lower European gas prices, coal and carbon also contributed to lower UK prices.


Weekly UK Insight 28 October 2019
Source: Reuters


£/MWh 18 Oct 19 25 Oct 19 Change
Day-Ahead (DA) 36.50 37.18 1.9%
Nov 2019 49.13 47.62 -3.1%
Summer 2020 47.25 46.05 -2.5%
Winter 2020/21 54.08 53.20 -1.6%

Source: Reuters

Day-Ahead power prices rose 1.9% to £37.18/MWh, reflecting higher spot gas and lower wind output.

Nov 2019 power prices dropped 3.1% lower to £47.62/MWh as lower gas, carbon and coal prices drove power markets lower.

Summer 2020 power prices fell 2.5% to £46.05/MWh reflecting losses in UK and European gas markets, with falling coal and carbon prices also feeding into lower seasonal UK power prices.


Weekly UK Insight 28 October 2019
Source: Reuters


$/bbl 18 Oct 19 25 Oct 19 Change
Brent Crude Dec 19 59.42 62.02 4.4%

Source: Reuters

Brent crude oil prices posted gains of 4.4% last week, settling on Friday at $62.02/bbl after China signalled progress in trade talks with the United States.

Meanwhile OPEC and Russia considered deeper production cuts. OPEC leader Saudi Arabia also wants to improve compliance with the cuts, as Iraq and Nigeria are among the countries that haven’t fully complied with the reductions. Under the output-cut pact, which began at the start of this year and runs through March 2020, OPEC and its allies agreed to cut production by 1.2 million bpd.

Gains were capped by an increase in U.S. crude stockpiles, with U.S. crude oil storage rising approximately 3 million bpd last week.


Weekly UK Insight 28 October 2019
Source: Reuters

Exchange Rates & Economics

£/$ 18 Oct 19 25 Oct 19 Change
GBP/USD 1.2971 1.2821 -1.2%

Source: Reuters

The Pound Sterling fell in value versus the U.S. dollar and euro after MPs backed a move to delay approval of the Brexit deal. There had been a lot of confidence going into last week’s vote that there would be something a little bit more constructive, so the Pound moved lower reflecting the delay.

Despite reservations from France, EU member states have agreed to extend the Brexit deadline until 31 January 2020. However, an earlier departure is possible if UK politicians can approve a deal.

Meanwhile, British MPs are due to vote later today on Prime Minister Boris Johnson’s call to hold a General Election on 12 December 2019. The PM says he will restart moves to get his Brexit deal bill into law if the motion is passed.


Weekly UK Insight 28 October 2019
Source: Reuters

Regulatory and Market News

UK Capacity Market secures approval from EU Commission following probe into State Aid

The European Commission said on Thursday it had approved the British Capacity Market scheme which is designed to safeguard the security of Britain’s electricity supply.

The scheme allows British power companies to receive a total of about £1 billion to help cover costs of keeping extra generation available at short notice in the case of sudden supply disruptions.

These payments were delayed after a European court ordered the Commission to secure more details on certain elements of the scheme, such as information on energy consumers willing to reduce their consumption when needed.

The Commission said on Thursday it found no evidence that capacity providers or the consumers ready to reduce consumption were at a disadvantage and found the scheme was in line with European Union state aid rules.

Britain’s government said it would be able to reinstate the mechanism to make payments to capacity providers, including the almost 1 billion pounds deferred during the suspension.

“The vast majority of the back-payments will reach capacity providers in January 2020,” the government said in a statement.

It also said three capacity auctions scheduled for early 2020 would take place, securing capacity needs out to 2023/24.

Drax Group chief executive Will Gardiner said: “We will be prequalifying a number of Drax’s flexible and reliable power stations, as well as some of our development projects, later this year with a view to participating in the capacity markets auctions in 2020.”

Some non-governmental groups and those working in the industry have sought to disrupt the scheme, which they say has illegally subsidised fossil fuels and made insufficient allowance for more innovative ways of supporting the power grid.

However, the British government previously said it expected the scheme would be reinstated and companies would receive c. £1bn of deferred payments that had been suspended because of the legal challenge. The conditional capacity agreements awarded in July’s T-1 auction had now also become legally binding contracts.

LINK: UK Parliament – Capacity Market approval

Ukraine and Russia brace for negotiations as gas transport contracts expires on 1 January 2020

The ongoing Ukrainian-Russian geopolitical tussle once again enters the realm of energy as trilateral gas-transit talks are set to resume in Brussels on 28 October between the EU, Moscow and Kyiv.

Ukraine is entering the talks, mediated by EU Energy Commissioner Maros Sefcovic, as its 10-year contract with Russia expires at the end of the year but with enough natural gas in storage to last through the winter.

A mild autumn season so far has helped Ukraine, whose state-run Naftogaz oil and gas conglomerate has stored 21.6 bcm of gas ahead of the winter, approximately 25% more that what it had during this period last year.

Ukraine and Russia have been negotiating over the duration of a new contract, transit volumes, and tariffs. At stake is about $3 billion in annual gas transit fees that Ukraine usually receives from Russia for transmitting gas to EU countries.

However, these flows could diminish or stop altogether as Moscow pursues the Nord Stream 2 project to build a pipeline under the Baltic Sea, bypassing Ukraine, that could go online as soon as spring 2020. Another project Russia is working on is TurkStream, which will also circumvent Ukraine and deliver gas to Bulgaria, Serbia, and Hungary to the south.

Kyiv entered the talks supporting the EU’s proposal to receive at least 60 billion bcm of flows a year, or about 75% of what Russia sent through Ukraine last year.

LINK: RFEL – Ukraine-Russia gas transit talks


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