|p/therm||19 Aug 16||26 Aug 16||Change|
Seasonal gas prices for Winter 2016/17 fell 2.9% last week in response to news that the maximum withdrawal capacity at Rough Storage would be higher than previously stated. Weaker oil markets also helped drive losses further along the curve.
Centrica unexpectedly announced that it could return 20 wells to service for withdrawal operations, rather than just 4 wells as previously confirmed. Injections are still offline until 2017, but the increase in withdrawal capacity will provide greater flexibility for the gas system to balance daily supply and demand this winter.
Langeled gas imports from Norway averaged only around 11 mcm/d, however a sharp increase in domestic UK Continental Shelf flows left the UK gas system oversupplied towards the end of the week. We forecast LNG send-out to increase to around 30 mcm/d from September given the high number of observed cargoes possibly heading to the UK.
Gas usage in power production rose last week, as a drop in wind speeds increased the reliance on gas-fired power stations to meet domestic demand. However, daily temperatures averaged 18.5°C, comfortably above seasonal normal levels, reducing the demand for gas used in domestic water heating.
Our outlook for seasonal gas prices could be driven increasingly by short-term forecasts as the front winter period is around one month away.
UK TEMPERATURE FORECAST
TOTAL UK GAS STORAGE
DAILY UK LNG SEND OUT
|LNG Tanker||Regas volume (mcm)||Expected Arrival Date||From||Port|
|Mozah||159||30 August||Qatar||South Hook|
|Shagra||160||31 August||Qatar||South Hook|
|Umm Slal||159||5 September||Qatar||South Hook|
|Lijmiliya||157||7 September||Qatar||South Hook|
|Al Samriya||157||12 September||Qatar||Isle of Grain or South Hook|
|£/MWh||19 Aug 16||26 Aug 16||Change|
Seasonal power prices for Winter 2016/17 declined 1.1%, settling at £45.74/MWh on Friday, as seasonal electricity markets took direction from the lower price of gas, as well as weaker sentiment in oil and carbon markets.
Hunterston B-7 returned to service last week, adding around 505MW of nuclear capacity to the power grid. However, maintenance at Hartlepool 2 continues, limiting nuclear capacity by around 620MW.
The Government has scrapped the Demand Side Balancing Reserve programme ahead of Winter 2016/17, after too few users said they were willing to put themselves on standby. The scheme proved vital in November last year when several power plants unexpectedly shut down. Read the full story in the Regulatory and Market News section.
UK POWER BASELOAD
|$/bbl||19 Aug 16||26 Aug 16||Change|
|Brent Crude Oct 16||50.88||49.92||-1.9%|
Brent Crude fell 1.9% to $49.92/bbl last week, in response to higher volumes of oil storage, though repeated OPEC rumours may once again reverse price declines. Official EIA data published by the US government reported an increase in crude oil inventories by 2.5 million barrels.
Reports suggest that Iran was moving in support of co-ordinated pricing actions, thought to be considered at a meeting of oil-producing nations taking place in Algeria during late September. However, even assuming an agreement were to lead to a freeze in OPEC production, the market would not be expected to see any real relief in the immediate future.
BRENT CRUDE OIL – MONTH-AHEAD
|£/$||19 Aug 16||26 Aug 16||Change|
The value of the pound ended the week 0.5% higher compared to the US dollar, as it was revealed a record number of investments were made by foreign firms in the UK prior to June’s Brexit vote. The Government recorded 2,213 foreign direct investment projects, up 11% on the previous year.
Since the Brexit vote both the automobile and retail industries are booming. UK consumer confidence increased to its highest level in three years this August. The Office for National Statistics confirmed a previous estimate that GDP growth rose 0.6% in Q2-2016, from 0.4% in Q1-2016.
EXCHANGE RATE – GBP/USD (£/$)
|€/tonne||19 Aug 16||26 Aug 16||Change|
|EUA Dec 16||4.80||4.73||-1.5%|
European carbon prices settled 1.5% lower last week, reflecting a decline in crude oil markets, weaker European power prices and higher wind output across Central Europe. Markets also saw quiet trading due to the UK’s bank holiday on Monday.
Lower prices could be realised this week as last week’s increase in European coal prices reduced the profitability of power generators burning carbon emitting fossil fuels.
CARBON ALLOWANCES – EUA DEC-2016
|$/tonne||19 Aug 16||26 Aug 16||Change|
|API2 CIF ARA 2017||56.15||57.40||2.2%|
European coal prices rose 2.2% week-on-week, as a heatwave across continental Europe drove up the demand for electricity for air conditioning. Japan and South Korea also said they wanted to expand coal imports while reducing more expensive LNG imports.
In the UK, new figures from the Department for Business, Energy and Industrial Strategy have revealed coal generation fell to a record low in Q2-2016, down 72% year-on-year, exhibiting a trend that appears to be irreversible in the face of Britain’s transition towards a green economy.
COAL – API2 CIF ARA 2017
National Grid scraps DSBR tender after failing to find enough willing participants
Plans to pay large energy users to cut their power usage during weekday evenings between 4pm and 8pm this winter have been scrapped after National Grid was unable to encourage enough participation.
Under the emergency Demand Side Balancing Reserve (DSBR) scheme, businesses could either cut their total electricity usage, or switch to using an alternative source of off-grid power such as a back-up generator. When old coal plant breakdowns caused a supply shortage in November 2015, the DSBR scheme was called on to pay dozens of large office buildings to power down their air conditioning and ventilation systems to reduce UK demand.
DSBR was designed for major energy users that do not already reduce/shift demand or run embedded generation during peak times in response to pricing signals. National Grid was seeking to recruit businesses that could reduce their demand by 177MW, but only had offers totalling about 30MW from firms willing to take part in the scheme between 5pm and 6pm, the hour when UK demand typically hits the absolute peak and the last resort measures are most likely to be needed.
Cathy McClay, head of commercial operations at National Grid, insisted the failure of the scheme would not affect the system operator’s ability to keep the lights on this winter, as it has already procured extra generation capacity through a separate last-resort scheme that pays old power plants to remain on standby.
DSBR was always intended as a transitional product to provide additional reserves ahead of the Capacity Mechanism. National Grid’s ‘Power Responsive’ programme continues to facilitate the growth of demand side solutions that work for energy users and innovation in the demand side response market.
Battery storage the winner in National Grid’s sub-second enhanced frequency response tender
National Grid accepted eight bids for companies to provide Enhanced Frequency Response (EFR), reacting in less than a second to help keep electricity flows in balance. The tender will see batteries used to balance at grid scale for the first time. The eight winners were:
The system operator received bids for 64 sites to provide the 200MW of response on offer. Of these sites, 61 used battery assets, two offered demand reduction and one used thermal generation.
Contracts have been awarded on a 4-year term giving providers the certainty that they need to develop this technology. National Grid said the enhanced ability to control variations in frequency will result in reduced costs of around £200 million.
Rising energy price trend during 2016 expected to test expanding independent energy supply market
The UK’s flourishing independent energy supply market is braced for a serious test as the broad increase in energy prices during 2016 make it harder for smaller companies to compete against larger energy rivals.
This summer energy markets have experienced their steepest climbs in half a decade, which is already putting pressure on smaller companies to raise their prices while big six suppliers are able to delay price hikes, which are often responsible for an exodus of customers.
In recent years the big six energy suppliers have lost market share to a rising breed of independent companies which typically rely on the wholesale energy markets to secure supply rather than producing their own gas and power by owning expensive production assets.
Independents can offer price cuts quicker than the big six which hedge their wholesale buying one to two years in advance. This has helped the small companies gain market share as market prices tumbled but this strategy could work against them amid rising energy prices.
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.