Weekly UK Insight - 29 January 2018

Gas

p/therm 19 Jan 18 26 Jan 18 Change
Day-Ahead (DA) 49.40 47.25 -4.4%
Feb 2018 50.13 49.14 -2.0%
Q2-2018 44.00 42.36 -3.7%
Summer 2018 43.51 41.91 -3.7%
Winter 2018/19 52.47 50.37 -4.0%

Source: Reuters

The UK’s Day-Ahead gas price fell 4.4% to 47.25 p/therm, as milder temperatures and strong wind output reduced demand for natural gas.

Throughout February gas imports via Norway’s Langeled pipeline are expected close to its maximum capacity at 74 mcm/d.

Flow’s via Norway’s Vesterled pipeline also rebounded to 35 mcm/d following a shutdown mid-week. Reuters expects this level to continue into February.

Over the next two weeks, operators expect 100 mcm of net injections into Medium Range Storage (MRS). However, as temperatures drop there will be a swing to storage withdrawals instead of utilising Dutch BBL imports. Even then, the outlook is not overtly bullish and there is no rapid depletion of MRS stocks expected.

There is a growing chance of a cold snap from 5th February. This has limited the drop in prices for the Feb-2018 contract compared to other periods.

LNG send-out from UK terminals remain around 7 mcm/d. This volume is expected to continue into February with just one cargo scheduled to arrive at South Hook during February.

The seasonal gas price for Summer 2018 fell 3.7%, reflecting easing winter supply concerns and Continental European energy markets.

UK NBP

Weekly UK Insight 29 January 2018
Source: Reuters

Power

£/MWh 19 Jan 18 26 Jan 18 Change
Day-Ahead (DA) 52.68 46.41 -11.9%
Feb 2018 49.83 49.27 -1.1%
Q2-2018 44.56 43.23 -3.0%
Summer 2018 44.02 42.82 -2.7%
Winter 2018/19 50.36 48.85 -3.0%

Source: Reuters

Day-Ahead power prices dropped 11.9% to £46.41/MW, reflecting a drop in spot gas prices to be used in power generation and forecasts for strong wind power production for the next few days.

Four nuclear units totalling 2318 MW are offline for planned maintenance while a fifth unit, the 480 MW Hunterston B-7 unit, has been briefly shutdown in an unplanned outage.

Seasonal power prices for Summer 2018 fell, reflecting similar losses in the corresponding UK gas market, with significant losses in German power prices also driving UK energy markets lower.

UK POWER BASELOAD

Weekly UK Insight 29 January 2018
Source: Reuters

Oil

$/bbl 18 Jan 18 25 Jan 18 Change
Brent Crude Mar 18 69.31 70.42 1.6%

Source: Reuters

Brent crude oil prices traded above $70/bbl to hit its highest level since 2014, extending the market’s bullish start to the year. Oil has increasingly found support as crude stockpiles have fallen and market participants have focused on geopolitical risk in producer countries.

U.S. president Donald Trump is expected to make a decision on whether to extend a suspension on sanctions against Iran this week.

Official government data from the EIA also showed US production fell by 290,000 bpd to 9.5 million bpd, likely due to a cold snap across the country.

BRENT CRUDE OIL – MONTH-AHEAD

Weekly UK Insight 29 January 2018
Source: Reuters

Exchange Rates & Economics

£/$ 18 Jan 18 25 Jan 18 Change
GBP/USD 1.3891 1.4145 1.8%

Source: Reuters

The Pound Sterling surged to a new post-Brexit vote high against the US dollar, after the Office for National Statistics revealed strong employment figures. UK employment rose 102,000 in the three months to November, totalling 32.2 million, boosting the employment rate to 75.3%.

Markets have been pricing in the potential for a messy departure from the European Union, and even a no-deal scenario. The Pound has strengthened as the latter eventuality appears to have become increasingly unlikely. David Davis, the Brexit minister, told MPs on Wednesday that he expects to agree to a transition deal by the end of March.

EXCHANGE RATE – GBP/USD (£/$)

Weekly UK Insight 29 January 2018
Source: Reuters

Regulatory and Market News

Triad export rates to be cut by a third this year after High Court refuses temporary injunction

Firms challenging Ofgem’s decision to make deep cuts to Triad export rates have been refused a temporary injunction to stop the decision from coming into effect from 1 April. The companies sought the injunction ahead of the T-1 Capacity Market (CM) auction, which starts on Tuesday.

Lower Triad export payments will affect small generators’ CM bidding strategies. If they earn a lot for exporting power during times of transmission system stress (Triad payments), they can bid lower in the auction. As it stands, they no longer have that advantage.

Owners of gas and diesel farms with contracts for delivery next winter and winter 2019/20 may also decide to offload them due to the regulatory intervention, according to consultants Aurora.

Ofgem has decided to cut Triad export rates by roughly a third this year, a further third in 2019 and again in 2020 to leave them between 3-7% of their current value, £45/kW.

The regulator argues it is fixing a market distortion which it says could potentially save consumers up to £7bn by 2034. Decentralised generators have questioned its analysis and approach.

LINK: Ofgem – changes to Triad export rates

PPAs boom as corporates eye economic benefits of renewable power

Power Purchase Agreements (PPAs) with renewable generators showed a four-fold increase across the RE100 group, which encompasses 122 large corporates committed to buying 100% renewable power. Most of the PPA growth in Europe came from deals struck between members and off-site generators in the UK.

88% of RE100 member companies said economics of buying renewable power were an important part of the rationale to commit to doing so.

The organisation plans to expand to 200 members this year, and believes that by boosting the buying power of the group they can help deliver significant progress within renewables supply chains, further driving down costs.

As well as PPA growth, the report suggests member companies are also massively increasing the amount of power they generate and consume from on-site renewables.

LINK: RE100 – future of corporate PPAs

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