Weekly UK Insight - 3 December 2018

Gas

p/therm 23 Nov 18 30 Nov 18 Change
Day-Ahead (DA) 66.50 63.40 -4.7%
Jan 2019 68.66 67.54 -1.6%
Summer 2019 55.25 55.76 0.9%
Winter 2019/20 63.34 63.89 0.9%

Source: Reuters

The UK’s Day-Ahead gas price slid 4.7% to 63.40 p/therm as increased supply from the North Sea and gas storage left the UK gas system 21 mcm/d oversupplied.

Gas withdrawals from Rough came back online after a brief outage. Rough output could contribute around 20 mcm/d over the next 3 months as demand continues to ramp up.

Temperatures are also forecast to remain above seasonal normal levels for most of the next week, which should result in lower gas demand to be used in heating.

Norwegian outages limited price declines as gas imports through the Langeled pipeline fell to 54 mcm/d.

Summer 2019 gas prices rose 0.9% to 55.76 p/therm tracking gains in carbon and coal, which lifted European gas markets.

France and Belgium remain confident that several nuclear reactors will return to service over the next month, however capacity forecasts remain tight for early 2019.

A European Court of Justice (ECJ) advocate-general has cast doubt on Belgium’s decision to extend the life of one of its ageing nuclear power plants, suggesting that environmental impact assessments may not have been carried out properly. Reactors Doel 1 and 2 near Antwerp were scheduled to cease production in 2015, but the Belgian government decided to extend their lives by 10 years. The news raises doubt on future production.

UK NBP

Weekly UK Insight 3 December 2018
Source: Reuters

Power

£/MWh 23 Nov 18 30 Nov 18 Change
Day-Ahead (DA) 71.84 60.44 -15.9%
Jan 2019 66.51 65.98 -0.8%
Summer 2019 55.58 56.13 1.0%
Winter 2019/20 61.19 61.86 1.1%

Source: Reuters

Day-Ahead power prices fell 15.9% to £60.44/MWh as strong wind speeds made up for a shortfall in nuclear power output.

Summer 2019 power prices rose 1.0% to £56.13/MWh, approximately matching higher prices in the equivalent gas contracts.

Doubt over the future of Belgium’s Doel nuclear plant has created uncertainty in Northwest Europe. Several nuclear outages in the region have already created a potential supply gap in early 2019, so a more permanent decision to take Belgium’s Doel reactors offline could be significant.

UK POWER BASELOAD

Weekly UK Insight 3 December 2018
Source: Reuters

Oil

$/bbl 23 Nov 18 30 Nov 18 Change
Brent Crude Feb 19 58.80 58.71 -0.2%

Source: Reuters

Brent crude oil price losses were limited to just 0.2% last week closing down at $58.71/bbl as markets were buoyed by speculation of production cuts and relaxing geopolitical tensions between the U.S. and China.

The U.S. and China have bilaterally agreed to put their trade war on hold, as talks continue between both countries

OPEC will hold a meeting on December 6 in Vienna. There has been speculation that production cuts will be announced at that time following declines that started mainly in the second half of October that extended into November.

BRENT CRUDE OIL – MONTH-AHEAD

Weekly UK Insight 3 December 2018
Source: Reuters

Exchange Rates & Economics

£/$ 23 Nov 18 30 Nov 18 Change
GBP/USD 1.2812 1.2751 -0.5%

Source: Reuters

The value of the Pound Sterling fell 0.5% versus the U.S. Dollar last week, as news that the U.S. and China had agreed to put their trade war on hold for 90 days, strengthened the U.S. Dollar.

According to the Nationwide House Price Index, annual house price growth edged up slightly by 1.9% in November – up from 1.6% the previous month. However, Nationwide Building Society’s chief economist Robert Gardner said: “In the near term, the squeeze on household budgets and the uncertain economic outlook is likely to continue to dampen demand, even though borrowing costs remain low and the unemployment rate is near 40-year lows.”

EXCHANGE RATE – GBP/USD (£/$)

Weekly UK Insight 3 December 2018
Source: Reuters

Regulatory and Market News

Ofgem tightens rules for new energy suppliers as money goes missing

The UK energy regulator Ofgem plans to make it more difficult for new energy suppliers to start trading as it looks to tackle a growing number of failed ventures and poor customer service among smaller players in the sector.

Proposed rules for new energy suppliers will require applicants to demonstrate they have the money and the resource to operate for at least a year before being granted a licence.

The move comes as small suppliers feel the bite of rising prices and inadequate balance sheets often in combination with poorly executed hedging strategies and a lack of market expertise.

Several small suppliers have gone bust in recent months, with strong market speculation that more will follow this winter.

The move comes after efforts by the government and Ofgem to increase competition in the sector in recent years prompted a flurry of new entrants. There were 73 active electricity and gas suppliers in June this year, compared to 60 a year ago and just 14 at the end of 2011.

At the same time the dominance of the “Big Six” energy suppliers has reduced, and a quarter of customers are now with smaller providers. But questions have been raised over the viability of some of the newer players: seven have exited the market so far in 2018.

LINK: Ofgem – new rules for energy suppliers’ licenses

Scientists say 2018 on course to be fourth warmest year on record

The year 2018 is on course to be the fourth hottest on record.

That’s the verdict from a new World Meteorological Organisation (WMO) report, which illustrates how the global average temperature for the year up until October was nearly a whole 1°C above the levels observed between 1850 and 1900 – this period is generally considered the pre-industrial era.

The study highlights how the 20 hottest years recorded have occurred in the past 22 years, with the last four years taking the top four places on the rankings.

It also suggests a relatively weak El Niño in early 2019 could mean next year is even hotter, with forecasted temperature rises of as much as 5°C by 2100.

For the most recent decade, the average temperature increase was 0.93°C above the pre-industrial baseline.

The WMO warns as temperatures continue to rise, dangerous wildfires and flooding that has already killed thousands are also likely to sharply increase.

WMO Secretary-General Petteri Taalas said: “We are not on track to meet climate change targets and rein in temperature increases. Greenhouse gas concentrations are once again at record levels and if the current trend continues, we may see temperature increases 3°C-5°C by the end of the century.”

LINK: WMO – 2018 to be 4th warmest year on record

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