Weekly UK Insight - 2 December 2019

Gas

p/therm 22 Nov 19 29 Nov 19 Change
Day-Ahead (DA) 42.00 40.45 -3.7%
Jan 2020 44.43 42.76 -3.8%
Summer 2020 39.69 37.80 -4.8%
Winter 2020/21 49.50 47.83 -3.4%

Source: Reuters

The UK’s Day-Ahead gas price fell 3.7% to 40.00 p/therm, as strong gas send-out from all three UK LNG terminals left the UK gas system around 8 mcm/d oversupplied.

Total LNG send-out is forecast at 121 mcm/d this morning, strongly up from 78 mcm/d on Friday. The increase reflects the fact that 11 LNG cargoes are scheduled to be delivered into UK terminals within the next two weeks.

Jan 2020 gas prices also fell 3.8% reflecting Europe’s well stock gas storages. Despite recent withdrawals, gas stockpiles across the EU region are still around 88% of total capacity.

The Summer 2020 gas price declined 4.8% week-on-week to 37.80 p/therm, after Norwegian gas operator Gassco confirmed that a minor explosion at the Heimdal platform had not had any adverse impact on gas flows to the UK or Continental Europe.

The fact that the 11 LNG tankers arriving in the UK originate from six different countries, with just one of these coming from Qatar, demonstrates the sustained gradual growth of global LNG operations. The increase in available deliveries from Russia, USA, Trinidad and Tobago, Singapore and Peru mean that the UK has a wider variety of supply sources during colder winter months.

A stronger Pound, lower crude oil and coal prices also made gas prices across the curve less expensive

UK NBP

Weekly UK Insight 2 December 2019
Source: Reuters

Power

£/MWh 22 Nov 19 29 Nov 19 Change
Day-Ahead (DA) 45.01 48.02 6.7%
Jan 2020 50.71 49.70 -2.0%
Summer 2020 45.51 44.41 -2.4%
Winter 2020/21 52.71 51.81 -1.7%

Source: Reuters

Day-Ahead power prices increased 6.7% to £48.02MWh, reflecting a drop in wind output and higher spot carbon prices, making gas and coal-fired power production more expensive.

Summer 2020 power prices fall 2.4% to £44.41/MWh in response to losses in the equivalent gas and coal markets, with the stronger Pound Sterling also a factor.

In France, EDF has delayed the restart of its 900MW Cruas 2 nuclear reactor until 5th Dec, but this is not expected to have a long term impact on European supply.

UK POWER BASELOAD

Weekly UK Insight 2 December 2019
Source: Reuters

Oil

$/bbl 22 Nov 19 29 Nov 19 Change
Brent Crude Feb 20 63.39 62.43 -1.5%

Source: Reuters

Brent crude oil prices fell 1.5% last week to $62.43/bbl on fresh trade tensions between China and the United States and record high U.S. crude production.

China warned the U.S. that it would take “firm countermeasures” in response to U.S. legislation backing anti-government protesters in Hong Kong. Hopes of reaching an initial trade deal before the year-end now look less likely.

OPEC and Russia are holding their next meeting in Vienna on Thursday the 5th of December where they will discuss plans to extend and deepen production cuts.

BRENT CRUDE OIL – MONTH-AHEAD

Weekly UK Insight 2 December 2019
Source: Reuters

Exchange Rates & Economics

£/$ 22 Nov 19 29 Nov 19 Change
GBP/USD 1.2830 1.2933 0.8%

Source: Reuters

The Pound Sterling rose versus the U.S. dollar and euro, reflecting growing confidence early last week that the Conservative Party will be able to secure a majority in the UK’s December election.

However, weekend polling showed that Labour’s estimate vote share had risen to 33%, up 5%. The Conservatives meanwhile fell 2% to reach 39%.

With regards to watching the polls and the potential election outcome, it is not the absolute % vote share that each party secures that is instructive, rather it is the gap between the parties that come first and second which matters. This is a quirk of the UK’s first-past-the-post electoral system, where a candidate in each constituency must tally the most votes to win that seat.

EXCHANGE RATE – GBP/USD (£/$)

Weekly UK Insight 2 December 2019
Source: Reuters

Regulatory and Market News

Npower to cut up to 4,500 UK jobs in £500m restructure by E.ON

UK energy provider Npower is to cut up to 4,500 jobs as part of a significant shake-up that will include the closure of the majority of its sites.

Under plans announced on Friday, Eon, the German group that recently acquired Npower, will fold the lossmaking UK company’s domestic and small business customers into its own British business.

The revamp will cost £500m and is set to take place over the next two years. Eon declined to comment on the number of job losses involved but one person briefed on the plans confirmed about 4,500 jobs were targeted. The company’s call centres will be among the sites affected.

Eon acquired Npower as part of its landmark €43bn asset swap with fellow German energy major RWE.

There are approximately 64 active licensed suppliers in the non-domestic electricity market. Npower have the 4th largest market share in the SME market and are 2nd in the corporate business market.

There will certainly be big changes in the current Npower Home and SME businesses over the next two years, but Npower’s I&C unit is not expected to be impacted. In fact this continues to be a profitable business, and has been ring-fenced so will not be significantly impacted.

Npower had started cutting jobs before the deal with Eon had been completed. It said at the start of the year that it would shed about 900 jobs in the UK — 15% of its workforce — as market conditions in the energy sector worsened.

The Big Six energy suppliers in Britain have suffered in recent years from an influx of new competitors, which have been able to take advantage of their lower cost bases to offer cheaper deals to customers. A government-mandated price cap on energy bills for 11 million households came into force at the start of this year, adding pressure to profit margins.

To add to the difficulties, the UK opposition Labour party has pledged to nationalise the supply arms of the Big Six if it were to gain power at next month’s general election.

LINK: FT – E.ON & Npower restructuring

Government will not widen eligibility threshold for EII scheme, keeping this at current 20% intensity

The UK Government has decided that it will maintain the eligibility threshold for the energy intensive industries (EIIs) scheme at the current 20% electricity intensity.

The Department for Business, Energy & Industrial Policy published a consultation in 2018 seeking views on whether there were competitive distortions resulting from the current eligibility threshold for EIIs that were entitled to the exemption from certain indirect costs of the Contracts for Difference (CFD), Renewables Obligation (RO) and small-scale Feed-In-Tariff (FIT). The current eligibility criterion, for businesses in eligible sectors, is 20% electricity intensity.

BEIS sought views on whether:

  • there was evidence that the current threshold is causing or could cause significantcompetitive distortions, to address those distortions by lowering the electricityintensity threshold to either 17%, 15% or 10%; and
  • if they were to lower the threshold, to lower the aid intensity for EIIs with lower levels of electricity intensity in order to minimise the impacts on other consumers.

However, while lowering the electricity intensity threshold would enable more EIIs to benefit from the exemption schemes, any of the lower thresholds would add further costs onto the electricity bills of ineligibleconsumers, including households and other businesses.

As a result, BEIS decided that the eligibility threshold for th exemption schemes will be maintained at the current 20% electricity intensity. Plus the aid intensity will remain at the current 85% level.

LINK: BEIS – EII not widening eligibility

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Disclaimer: These views and recommendations are offered for your consideration and Beond makes every effort to ensure that the data and information in this report is accurate. However, due to the volatile and unpredictable nature of the energy markets, Beond cannot guarantee the accuracy of both the information and the recommendations provided. Beond does not accept any responsibility for errors or misstatements, or for any direct, indirect, consequential or other loss arising from any use of this information and/or further communication in relation to this information.