Weekly UK Insight - 29 October 2018

Gas

p/therm 19 Oct 18 26 Oct 18 Change
Day-Ahead (DA) 68.00 63.10 -7.2%
Nov 2018 72.56 65.27 -10.0%
Q1-2019 74.96 69.53 -7.2%
Summer 2019 62.07 58.65 -5.5%
Winter 2019/20 69.91 67.22 -3.8%

Source: Reuters

The UK’s Day-Ahead gas price dropped 7.2% to 63.10 p/therm as strong gas pipeline flows from Continental Europe and the North Sea left the UK gas system around 15 mcm oversupplied.

The end of major summer maintenance means that imports via Norway’s Langeled and Vesterled pipelines, as well as domestic flows from the UK Continental Shelf, are at capacity. Thomson Reuters is estimating stable Norwegian flows close to capacity for the rest of winter, barring major outages.

UK LNG terminals are forecasting five cargo deliveries over the next two weeks. However, Reuters is also anticipating a decrease in LNG arrivals as a result of strong supply and a lack of demand from Medium Range Storage which is already close to 100% capacity.

Despite colder temperature forecasts over the next week, which should result in higher gas demand to be used in heating, temperatures are expected to return to above seasonal normal levels in the first week of November.

Summer 2019 gas prices tracked winter prices lower, falling 5.5% to 58.65 p/therm week-on-week, tracking lower prices for oil, coal, carbon and European gas prices. The supply and demand of Northwest Europe’s gas market is looking more comfortable ahead of the winter. UK Medium Range Storage has already reached capacity, while strong gas injections across Northwest Europe have seen gas storage levels largely catch up with historic normal levels.

UK NBP

Weekly UK Insight 29 October 2018
Source: Reuters

Power

£/MWh 19 Oct 18 26 Oct 18 Change
Day-Ahead (DA) 63.87 62.01 -2.9%
Nov 2018 68.77 63.85 -7.2%
Q1-2019 69.59 65.48 -5.9%
Summer 2019 59.00 56.36 -4.5%
Winter 2019/20 63.79 62.33 -2.3%

Source: Reuters

Day-Ahead power prices fell 2.9% to £62.01/MWh as lower spot gas and coal prices reduced the cost of power production.

Summer 2019 power prices declined 4.5% to £56.36/MWh tracking seasonal losses increases UK gas market, while European power prices and coal also fell reducing the cost of input fuels to be used in power generation.

However, ongoing Brexit uncertainty did weaken the Pound, making interconnector power imports from Continental Europe more expensive.

UK POWER BASELOAD

Weekly UK Insight 29 October 2018
Source: Reuters

Oil

$/bbl 19 Oct 18 26 Oct 18 Change
Brent Crude Dec 18 79.78 77.62 -2.7%

Source: Reuters

Brent crude oil prices slid 2.7% last week, closing down at $77.62/bbl, amid cautious sentiment as a plunge in financial markets and dollar strength underscored concerns that growth may be slowing, especially in Asia’s emerging economies.

In the meantime, however, a tight market in Asia is visible in the low amount of unsold crude oil stored on tankers on waters around Singapore and southern Malaysia, the region’s main oil trading and storage hub.

In North America, however, there is no oil shortage as U.S. crude oil production has increased by almost a third since mid-2016 to around 11 million bpd.

BRENT CRUDE OIL – MONTH-AHEAD

Weekly UK Insight 29 October 2018
Source: Reuters

Exchange Rates & Economics

£/$ 19 Oct 18 26 Oct 18 Change
GBP/USD 1.3070 1.2831 -1.8%

Source: Reuters

The value of the Pound Sterling fell 1.8% versus the U.S. Dollar last week thanks to concerns a no-deal Brexit is looking increasingly likely.

Philip Hammond will announce the end of austerity on Monday in his third Budget, but warn Eurosceptics that a brighter future of tax cuts and higher public spending will be wrecked if Britain does not secure a good Brexit deal.

Mr Hammond, buoyed by an unexpected £13bn windfall of higher-than-expected tax receipts, will loosen the public spending taps with more money for strained public services, including an extra £2bn a year for mental health.

EXCHANGE RATE – GBP/USD (£/$)

Weekly UK Insight 29 October 2018
Source: Reuters

Regulatory and Market News

Cuadrilla resumes fracking after minor tremor halted operations

Cuadrilla restarted fracking at its site in Lancashire yesterday after a minor tremor brought it to a halt last week.

The temporary halt came just a week after the company started the operation at the Preston New Road site – the first operation to take place in the UK in seven years.

Its “highly sensitive” monitoring systems at and around its shale gas exploration site detected a seismic event of 0.4 on the Richter scale, which led to the firm calling off activity for a day on Tuesday.

In 2011, fracking was halted for seven years after experts said two Lancashire tremors – one registering a 2.3 magnitude – were caused by shale gas test drilling.

Cuadrilla said in a statement: “This is an extremely low level of seismicity, far below what could possibly be felt at the surface but classed as an amber event as part of the Traffic Light System (TLS) in place for monitoring operational activity. As such, we are required to reduce the rate we are pumping fracturing fluid once it has been detected.”

Cuadrilla said: “Local residents should be reassured that the monitoring systems in place are working as they should. These are tiny seismic events that are being detected by our monitors as we fracture the shale rock and are not capable of being felt, much less cause damage or harm.”

Environmental group Frack Free Lancashire said: “Local residents are rightly concerned by these events and the fact that the tariff light system has had to halt operations just a week into the process.

“The issue is not whether these events can be felt, but whether they could be precursors to similar events that occurred at Preese Hall in 2011, which led to Cuadrilla’s performance as a licensee being questioned by the then Energy Minister, Charles Hendry.”

LINK: Cuadrilla – minor tremor event disruption

UKPN to trial Faraday Grid self-balancing network, helping smooth volatility in renewable production

Faraday Grid is to partner with UK Power Networks to trial its autonomous, self-balancing network, which can be installed within an existing electricity grid.

Comprising a network of independent “Faraday Exchangers”, a piece of kit that replicates network transformers and is designed to automatically smooth the intermittency and volatility of renewable generation, increasing the amount of renewable generation a grid can carry.

The first Faraday Exchangers will be deployed in UK Power Network’s existing London network for live testing in spring 2019. The testing will assess the impact of the Faraday Grid on the network, such as improving capacity and avoiding more costly infrastructure upgrades.

Ian Cameron, Head of Innovation at UK Power Networks said: “We have recognised that Faraday’s technology has the potential to be transformational for distribution networks and the wider energy system. The technology is aligned to our ambition to become an energy platform business. We are delighted to be the company’s lead UK partner for testing and demonstrating its impacts in a distribution network.”

LINK: Faraday Grid – UKPN trials system

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