Weekly UK Insight - 29 April 2019

Gas

p/therm 18 Apr 19 26 Apr 19 Change
Day-Ahead (DA) 33.10 32.35 -2.3%
May 2019 34.41 33.90 -1.5%
Winter 2019/20 56.76 57.00 0.4%
Summer 2020 46.61 47.15 1.2%

Source: Reuters

The UK’s Day-Ahead gas price briefly traded at a two-year low below 27 p/th on Tuesday after the UK gas system opened 35 mcm/d oversupplied, before a late recovery meant prices only ended the week 2.3% lower at 32.35 p/therm.

The annual maintenance shutdown at the IUK gas pipeline between the UK and Belgium started on 21 April and gas storages have been injecting heavily at 73mcm/d, the level close to total injection capacity. However, injections dropped to 33mcm/d, the main reason for the oversupply last Tuesday.

Britain is expected to receive nine LNG tankers over the next two weeks, supporting UK gas system supply as temperatures fall in line with seasonal normal levels over the same period. Warm temperatures coupled with strong wind and solar output contributed to the significant oversupply.

Winter 2019/20 gas prices rose 0.4% to 57.00 p/therm, driven higher by crude oil prices, despite weaker short-term demand and lower coal prices. Nuclear outages were also a key driver in pushing up winter prices.

EDF energy has extended an outage at its Hunterston B8 nuclear reactor by two weeks while the nuclear regulator assesses whether it is safe to restart after cracks were discovered last year.

The announcement hasn’t had a big impact on the corresponding power contract, but the increased supply concern has boosted gas prices reflecting the risk that further outages increase demand in gas for power production.

UK NBP

Weekly UK Insight 29 April 2019
Source: Reuters

Power

£/MWh 18 Apr 19 26 Apr 19 Change
Day-Ahead (DA) 44.62 39.94 -10.5%
May 2019 42.98 42.32 -1.5%
Winter 2019/20 59.60 59.40 -0.3%
Summer 2020 50.35 50.43 0.2%

Source: Reuters

Day-Ahead power prices fell 10.5% to £39.94/MWh, in response to lower spot gas prices and strong wind and solar output.

Winter 2019/20 power prices fell 0.3% to £59.40/MWh, tracking weaker coal and carbon prices. This was despite an announcement from EDF that an outage at its Hunterston B8 nuclear reactor would be extended by two weeks until 14 May.

UK POWER BASELOAD

Weekly UK Insight 29 April 2019
Source: Reuters

Oil

$/bbl 18 Apr 19 26 Apr 19 Change
Brent Crude Jun 19 71.97 72.15 0.3%

Source: Reuters

Brent crude oil prices rose 1.6% week-on-week to $72.15/bbl, as tighter U.S. sanctions on Iranian oil planned for May are added to a wealth of factors driving up prices.

Refiners are looking for alternative suppliers of the heavy crude oil once provided in abundance by Iran and Venezuela.

U.S. officials say overall global oil supply will remain plentiful despite its sanctions, not least from the boom in U.S. shale. But much of the profusion in supply, led by the United States, Saudi Arabia and Russia, is in lighter grades.

BRENT CRUDE OIL – MONTH-AHEAD

Weekly UK Insight 29 April 2019
Source: Reuters

Exchange Rates & Economics

£/$ 18 Apr 19 26 Apr 19 Change
GBP/USD 1.2996 1.2917 -0.6%

Source: Reuters

The value of the Pound Sterling fell versus the U.S. dollar and euro last week in response to new economic forecasts from EY that UK economic growth will slow in the second half of the year after a strong start. The economy is now predicted to grow at just 1.3% in 2019, the slowest rate since the financial crisis. EY had previously predicted growth of 1.5%.

After an unexpectedly resilient start to the year, prolonged Brexit uncertainty and a global economic slowdown continue to hinder the economy.

EXCHANGE RATE – GBP/USD (£/$)

Weekly UK Insight 29 April 2019
Source: Reuters

Regulatory and Market News

Russian supplier Gazprom sees output falling as European gas demand declines

Russian gas supplier Gazprom has forecast a decline in natural gas production outlook for 2019, largely thanks to warm weather and growing competition from global liquified natural gas exports.

Gazprom’s Deputy CEO Vitaly Markelov said: “We plan to produce 495 bcm of gas this year”.

That volume would mark Gazprom’s first drop in output in five years, from 497.6 bcm in 2018. The energy company revises its output plans several times a year based on demand in Europe, its largest market. The region currently has plenty of gas in storage after a warm winter reduced consumption.

Gazprom last week estimated that European gas storage facilities are 42% full and said that purchases to replenish the stocks “will be significantly lower than in previous years.” While the company’s gas production from Jan. 1 through April 15 rose by 2% year on year, its exports to Europe and Turkey dropped 9%.

An influx of liquefied natural gas supplies to Europe has been pushing down prices. The UK wholesale day-ahead gas price, for example, briefly traded just below 27 p/th, the lowest level since 2016 and below a 5-year average of 46 p/th.

The price moves show how gas markets around the world have become more connected thanks to increasing volumes of LNG cargoes moving the gas from one continent to another.

While Gazprom has traditionally dismissed the potential impact of LNG cargoes from the U.S. on its position in Europe, Elena Burmistrova, head of Gazprom’s export arm, said this February that North American supplies are “worrisome.”

In addition, Gazprom has unexpectedly faced competition in Europe from a domestic rival, Novatek. The independent gas producer, which started output at its LNG facility in the Arctic in 2017, became a major supplier of the super-chilled fuel to northwestern Europe during the past winter after prices in Asia dropped.

LINK: Bloomberg – Gazprom output falling 2019

U.K. shale gas advocate quits, citing ‘de facto’ fracking ban

The U.K.’s commissioner for shale gas Natascha Engel, an advocate for the public, has quit after six months, saying government policies and strict rules on hydraulic fracturing are stunting activity.

“Developing a shale gas industry in the U.K. will be an almost impossible task” without a policy change, Natascha Engel wrote in a letter to Business Minister Greg Clark.

“The government’s decision to force the industry to stop fracking every time there is a micro-tremor of 0.5 amounts to a de facto ban on fracking,” she said in a statement accompanying the letter.

According to a report from the U.K. Onshore Oil and Gas Group, if Britain rolled out 100 shale gas sites across the country, net gas imports would almost be eliminated, improving the nation’s balance of payments by 8 billion pounds ($10 billion) a year.

However, Ms Engel’s departure will be welcomed by green groups who said her pro-fracking views precluded her from being an honest broker. A spokeswoman for the environmental protest group Extinction Rebellion said Ms Engel’s resignation meant the government should “rethink” its energy policy and move away from fossil fuels.

LINK: BBC – Fracking advocate quits

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