Weekly UK Insight - 2 September 2019

Gas

p/therm 23 Aug 19 30 Aug 19 Change
Day-Ahead (DA) 27.30 25.70 -5.9%
Oct 2019 31.75 33.03 4.0%
Winter 2019/20 46.40 46.33 -0.2%
Summer 2020 43.05 42.63 -1.0%

Source: Reuters

The UK’s Day-Ahead gas price fell 5.9% to 25.70 p/therm as a sharp increase in LNG supply left the UK gas system around 24 mcm/d oversupplied.

South Hook is expecting to receive as many as five LNG cargoes over the next two weeks. As a result, LNG send-out from Britain’s terminals has jumped from 8 to 20 mcm/d.

It had been expected that some Medium Range Storage would contribute to supply, however the oversupplied gas system means this is now unlikely.

On the demand side, National Grid’s forecast gas demand is expected at 132 mcm/d, below the seasonal normal demand of 140 mcm/d.

Winter 2019/20 gas prices dipped just 0.2% lower week-on-week to 46.33 p/therm, as the forward curve tracked the prompt market lower. However, clients trading on the forward market would be wise to lock out any remaining winter volume as soon as possible.

The largest gas pipeline between Norway and the UK, Langeled, is scheduled to shutdown for annual maintenance between 10-23 September. Meanwhile, Norway’s Ormen Lange gas field is also expected to have maintenance starting on the 8-25 Sept with an impact of 42mcm/d.

UK NBP

Weekly UK Insight 2 September 2019
Source: Reuters

Power

£/MWh 23 Aug 19 30 Aug 19 Change
Day-Ahead (DA) 38.49 32.87 -14.6%
Oct 2019 41.37 42.27 2.2%
Winter 2019/20 51.64 52.05 0.8%
Summer 2020 47.19 47.19 0.0%

Source: Reuters

Day-Ahead power prices fell 14.6% to £32.87/MWh, responding to higher wind output and lower spot gas.

Winter 2019/20 power prices gained 0.8% to £52.05/MWh, tracking higher oil, coal and carbon pricing as well as the weaker Pound Sterling.

The front-season delivers in less than 4 weeks on 1 Oct. Any clients who have yet to secure their forward winter volume are advised to lock this in soon, before any further major unplanned outages drive the market higher.

UK POWER BASELOAD

Weekly UK Insight 2 September 2019
Source: Reuters

Oil

$/bbl 23 Aug 19 30 Aug 19 Change
Brent Crude Nov 19 59.34 60.43 1.8%

Source: Reuters

Brent crude oil prices rose 1.8% week-on-week to $60.43/bbl, after a larger-than-expected decline in U.S. crude stockpiles helped ease worries about weakening oil demand caused by the trade war between Washington and Beijing.

However, Russian oil production in August rose to 11.294 million bpd, topping the rate Moscow had pledged to cap output at under a pact with other producers and hitting its highest since March.

The production increase follows a report that OPEC cranked up its output in August, for the first month this year, as higher supply from Iraq and Nigeria outweighed restraint by top exporter Saudi Arabia and losses caused by U.S. sanctions on Iran.

BRENT CRUDE OIL – MONTH-AHEAD

Weekly UK Insight 2 September 2019
Source: Reuters

Exchange Rates & Economics

£/$ 23 Aug 19 30 Aug 19 Change
GBP/USD 1.2277 1.2156 -1.0%

Source: Reuters

The Pound Sterling fell in value versus both the US dollar and euro on ongoing Brexit uncertainty. Conservative whips have told rebel Tory MPs that they will be deselected if they vote to block a no-deal Brexit. On Tuesday, opposition parties are expected to launch an attempt to pass legislation which would effectively prevent the Prime Minister taking the UK out of the EU without a deal.

Meanwhile, the U.S. has imposed fresh tariffs on $112bn of Chinese imports. The move is the first phase of US President Donald Trump’s latest plan to place 15% duties on $300bn of Chinese imports by the end of the year. In response, Beijing began to introduce measures targeting $75bn worth of US goods. The measures included a 5% tariff on US crude oil, the first time fuel has been hit in the trade battle between the world’s two largest economies.

EXCHANGE RATE – GBP/USD (£/$)

Weekly UK Insight 2 September 2019
Source: Reuters

Regulatory and Market News

Siemens lands converter contract for Viking Link electricity interconnector

Siemens has won a contract to deliver two converter stations for the first high-voltage direct-current (HVDC) link between Great Britain and Denmark.

Viking Link will enable the exchange of electricity up to 1,400 MW to provide increased power-supply reliability and security to consumers in both countries. By allowing transmission to flow in both directions, Viking Link will support the integration of renewable energy sources into the power grid.

Viking Link will transmit surplus energy to wherever the level of demand is higher. Because periods of high wind-energy production and high demand are unlikely to occur simultaneously in both Great Britain and Denmark, the interconnector will result in lower prices in peak consumption periods and enables a more effective use of renewable energy.

It will give consumers in both countries access to a broader energy mix.

The interconnector is being jointly developed by National Grid Ventures (Great Britain) and Energinet (Denmark) via National Grid Viking Link Limited and Energinet Eltransmission A/S. Viking Link is scheduled to begin commercial operation at the end of 2023.

The order comprises a 1,400-MW converter system for DC voltage of ± 525 kilovolts (kV) using HVDC plus technology. The two converter stations – one in Bicker Fen in Lincolnshire (Great Britain), the other in Revising in southern Jutland (Denmark) – will be linked by a 767km-long DC power cable passing under the North Sea.

Viking Link will be one of the world’s longest DC electricity interconnectors. Siemens will be responsible for the overall system design, supply, installation, and commissioning of the converter stations.

LINK: Smart Cities World – Viking Link

Coal’s share of UK power generation drops to record low of 0.7%

The share of UK power generated by coal hit a record low of 0.7% between April and June. That’s according to new figures published by the Government, which shows generation is now a record 63% lower than during the same period in 2018.

The government says the reduction follows its “sustained support for renewable energy”, which it notes forms part of its mission to phase out coal by 2025.

So far in 2019 the UK has gone more than 3,000 hours without using coal to generate electricity, nearly five times more than during the whole of 2017.

Renewable sources picked up much of the slack, jumping by 12%, boosted particularly by offshore wind production which rose by a quarter after the 84 turbine Beatrice wind farm in Scotland officially opened.

In 2018 more than half of the UK’s power came from low carbon sources, with a third produced by renewables, up from 29.2% the previous year.

The Government also highlights that 99% of the UK’s current solar capacity has been brought online since 2010, with photovoltaic generation rising to a record 12.9TWh in 2018, 12% up on 2017.

A BEIS spokesperson said: “Coal-generated energy will soon be a distant memory on our path to becoming a net zero emissions economy.

LINK: Business Green – Coal 0.7% of fuel mix in Q2-2019

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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.