Weekly UK Insight - 30 September 2019

Gas

p/therm 20 Sep 19 27 Sep 19 Change
Day-Ahead (DA) 25.40 24.80 -2.4%
Oct 2019 33.30 30.65 -8.0%
Winter 2019/20 49.02 47.21 -3.7%
Summer 2020 46.07 44.79 -2.8%

Source: Reuters

The UK’s Day-Ahead gas price fell 2.4% to 24.80 p/therm as reduced nuclear supply risks, high European gas storage levels and expectations for strong LNG imports left the UK gas system very comfortable ahead of the winter season.

On the supply side, UK terminals could receive as many as 10 LNG cargoes within the next two weeks. As a result, LNG send-out is extremely strong at 59 mcm/d, delaying the need for operators to start withdrawals from gas storage.

Scheduled summer maintenance at Norway’s largest gas fields and terminals has now ended, meaning that gas imports to the UK have risen to 37 mcm/d. Two minor outages are restricting flows somewhat, but it is not thought that these issues will last long.

Winter 2019/20 gas prices slid 3.7% lower to 47.21 p/therm, as the risk of major nuclear outages in the UK or France appear to have been averted meaning that UK gas demand for power production should remain in line with seasonal normal averages over the next six months.

European gas storage remains extremely full for this time of year, hovering around 97% of its maximum storage capacity.

Further out, Summer 2020 gas prices recorded a 2.8% decline. Expectations for average temperatures this winter and Europe’s high gas and coal storage levels means that European stockpiles are not expected to be depleted during the colder months.

UK NBP

Weekly UK Insight 30 September 2019
Source: Reuters

Power

£/MWh 20 Sep 19 27 Sep 19 Change
Day-Ahead (DA) 29.02 32.10 10.6%
Oct 2019 42.79 41.23 -3.6%
Winter 2019/20 54.28 52.83 -2.7%
Summer 2020 49.87 48.80 -2.1%

Source: Reuters

Day-Ahead power prices jumped 10.4% to £32.10/MWh, reflecting below-average wind output.

Winter 2019/20 power prices slid 2.7% to £52.83/MWh ahead of its delivery on 1 Oct, tracking lower winter gas and the falling risk of nuclear outages hindering supply during peak times.

Summer 2020 power prices also fell as lower gas, coal and carbon reduced the expected cost of European power generation from fossil fuels.

UK POWER BASELOAD

Weekly UK Insight 30 September 2019
Source: Reuters

Oil

$/bbl 20 Sep 19 27 Sep 19 Change
Brent Crude Nov 19 64.28 61.91 -3.7%

Source: Reuters

Brent crude oil prices fell $3.7/bbl last week, settling on Friday at $64.28/bbl, reflecting easing tensions in the Middle East after a rather surprising turn of events.

Saudi Arabia is implementing a partial cease-fire in Yemen, rumours surfaced that the U.S. is considering easing sanctions on Iran, and Saudi Arabia is poised to restore disrupted production from the damaged Abqaiq facility.

The development follows the decision by Saudi Arabia and the United States not to attack Iran in response to drone strikes on Saudi Arabia’s oil infrastructure.

BRENT CRUDE OIL – MONTH-AHEAD

Weekly UK Insight 30 September 2019
Source: Reuters

Exchange Rates & Economics

£/$ 20 Sep 19 27 Sep 19 Change
GBP/USD 1.2477 1.2288 -1.5%

Source: Reuters

The Pound Sterling fell around 1.5% in value versus the U.S. dollar last week after a policymaker at the Bank of England (BoE) said in a speech that interest rates might need to be cut in the months ahead even if a ‘no deal’ Brexit is avoided, in contrast to the bank’s September claim that rates will still need to rise over the coming years.

Michael Saunders, a member of the Monetary Policy Committee that sets interest rates at the BoE, said an ongoing global slowdown and “persistently high uncertainty” over the likely outcome of the Brexit saga are now weighing heavily on the UK economy and that it might soon be appropriate to cut borrowing costs for companies and households as a result.

EXCHANGE RATE – GBP/USD (£/$)

Weekly UK Insight 30 September 2019
Source: Reuters

Regulatory and Market News

UK power generation in Q2-2019 sees coal’s share of fuel mix fall to just 0.7%

According to government data in recent months, the UK’s power generation saw record lows for coal, as the UK looks to meet the 2025 target of completely phasing out coal-fired power stations. At the same time, newly installed wind farms have helped renewables share of generation grow to over 35%.

The news comes as German utility firm RWE will be closing its last UK coal plant in South Wales at the end of March next year. This follows similar plans from both SSE and EDF. This recent spate of shutdowns means that by spring 2020 only four coal plants will be left in the UK.

Less than a decade ago, coal was responsible for over 40% of electricity generation, but shifting trends have seen this share tumble, making it no longer economically viable to keep some of them in operation.

So far this year the UK has gone more than 3,000 hours without using coal for power – nearly five times more than the whole of 2017.

Name Location Capacity (MW) Closure status
Aberthaw B Vale of Glamorgan 1,586 Due to close 31/3/2020
Cottam Nottinghamshire 2,008 Due to close 30/9/2019
Drax North Yorkshire 3,885 Converting to gas
Fiddlers Ferry Cheshire 1,961 Due to close 31/3/2020
Kilroot County Antrim 520 Contract extented by 12 months in May 2018
Ratcliffe Nottinghamshire 2,000 No plans to close
West Burton Nottinghamshire 2,012 No plans to close

Source: Powerstations.uk

As coal generation falls, renewables have seen their share grow. According to BEIS, newly installed offshore wind farms have helped renewable energy generation grow to 35.5% in Q2-2019.

It is expected that as new offshore wind capacity is secured at record low prices, and with further new developments announced, the share of renewables is only set to grow in the next ten years.

LINK: Guardian – RWE to close its last coal plant

Siemens announced new partnership with UK100 to unlock £100bn of clean energy

Engineering giant Siemens has announced a major partnership with nearly 100 mayors and council leaders in a bid to realise a pipeline of clean energy projects worth more than £100 billion.

The partnership, clinched with the UK100 – a network of local government leaders committed to sourcing 100% of their jurisdictions’ energy demand from clean sources – will see Siemens collaborate with the Department for Business, Energy and Industrial Strategy (BEIS) to create clean energy projects at “significant commercial scale”.

Financing from local authorities, private capital and government investment will be used to pursue the pipeline of projects, identified via a survey of local authorities conducted by UK100 alongside a study of local energy transition strategies by Siemens.

While the value of those projects has been placed at north of £100 billion, only a small percentage are ready for commercialisation, with others deemed to be at conceptual or feasibility study stages.

Siemens and UK100 pointed to “convoluted and confusing procurement processes”, as well as red tape and slow decision making, as potentially hampering projects from coming forward at scale, and the study identified that greater support from central government is needed to bring more projects to fruition.

LINK: Siemens – Partnership with UK100

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