Weekly UK Insight - 5 August 2019

Gas

p/therm 26 Jul 19 2 Aug 19 Change
Day-Ahead (DA) 27.60 31.65 14.7%
Sep 2019 28.65 32.72 14.2%
Winter 2019/20 50.32 50.96 1.3%
Summer 2020 46.13 46.47 0.7%

Source: Reuters

The UK’s Day-Ahead gas price jumped 14.7% to 31.65 p/therm as heavy summer maintenance across the UK Continental Shelf infrastructure hit pipeline flows to the UK gas grid starting on 1st August and lasting for around 10 days.

Maintenance outages will impact flows into the Forties and CATS pipeline from tomorrow, including various fields into the St. Fergus terminal and the Cygnus field.

There is a small probability that fields will remain offline longer than scheduled. This would likely be for commercial reasons due to low prompt prices. Norwegian gas field Troll has also reduced production as a result of low spot prices.

LNG send-out from Britain’s terminals increased to 16 mcm/d, as there are two new LNG tanker deliveries expected to arrive in Britain over the next two weeks.

Winter 2019/20 gas prices edged 1.3% higher week-on-week to 50.96 p/therm, reflecting news from RWE that it will close its Aberthaw coal-fired power plant before the end of the winter season, potentially putting further pressure on gas supply during times of peak demand.

However, European gas storage levels are already 84% full, which is higher than they were last year on 1st October, the official start of the heating season.

Uncertainties around Ukraine’s gas transit to Europe from January 2020 and the high influx of LNG into Europe has contributed to this premature build-up of gas storage stocks.

UK NBP

Weekly UK Insight 5 August 2019
Source: Reuters

Power

£/MWh 26 Jul 19 2 Aug 19 Change
Day-Ahead (DA) 38.89 42.48 9.2%
Sep 2019 41.06 44.53 8.5%
Winter 2019/20 55.97 56.55 1.0%
Summer 2020 50.15 50.77 1.2%

Source: Reuters

Day-Ahead power prices rose 9.2% to £42.48/MWh, reflecting the higher cost of spot gas, and lower wind generation.

Winter 2019/20 power prices gained 1.0% to £56.55/MWh, reflecting moderate gains in UK gas, carbon, European forward power prices and the weaker Pound Sterling, making energy imports into the UK more expensive.

In addition, news from RWE that it planned to close its last coal-fired power station by the end of March 2020 is driving prices on the forward curve. Along with other coal plant closures, the British mainland Grid will be left with just three coal-fired power facilities next year: West Burton, Ratcliffe and Drax.

UK POWER BASELOAD

Weekly UK Insight 5 August 2019
Source: Reuters

Oil

$/bbl 26 Jul 19 2 Aug 19 Change
Brent Crude Oct 19 63.46 61.89 -2.5%

Source: Reuters

Brent crude oil prices fell 2.5% week-on-week to $61.89/bbl amid renewed global economic growth concerns after U.S. President Donald Trump vowed to escalate the trade war with China by imposing more tariffs, which would likely limit fuel demand in the world’s two biggest crude consumers.

Signs of rising oil exports from the United States also pressured prices. U.S. shipments surged by 260,000 bpd in June to a monthly record of 3.16 million bpd.

Meanwhile, Iran’s seizure of an Iraqi oil tanker raised some concerns about potential Middle East supply disruptions in the Gulf. Iran’s state media reported on Sunday the Iranian Revolutionary Guards seized the ship for smuggling fuel.

BRENT CRUDE OIL – MONTH-AHEAD

Weekly UK Insight 5 August 2019
Source: Reuters

Exchange Rates & Economics

£/$ 26 Jul 19 2 Aug 19 Change
GBP/USD 1.2380 1.2154 -1.8%

Source: Reuters

The value of the Pound Sterling has continued to fall as the government insists that the UK is prepared to leave the EU without a deal. The Pound hit a fresh two-year low of $1.2131 against the U.S. dollar, while Britain’s currency also fell versus the euro.

Trump last week said he would impose a 10% tariff on $300 billion of Chinese imports starting on Sept. 1 and said he could raise duties further if China’s President Xi Jinping failed to move more quickly towards a trade deal. The announcement extends U.S. tariffs to nearly all imported Chinese products. China on Friday vowed to fight back against Trump’s decision, a move that ended a month-long trade truce.

EXCHANGE RATE – GBP/USD (£/$)

Weekly UK Insight 5 August 2019
Source: Reuters

Regulatory and Market News

RWE’s Aberthaw coal-fired power station to be closed at the end of March 2020

The last remaining coal-fired power plant in Wales is to shut down in March 2020, after energy firm RWE today announced “challenging” market conditions for UK coal power meant its 1.5GW Aberthaw B facility was no longer economically viable.

Roger Miesen, CEO of RWE Generation, said that market conditions for coal power in the UK had been challenging for some time, with climate change policies and increased competition from clean power sources such as wind and solar heavily impacting profitability as the UK shifts towards a low carbon energy system.

RWE said Aberthaw’s existing Capacity Market (CM) arrangements for this year and 2020/21 would be transferred to third parties “and a small proportion to other units” within its fleet, which it stressed would leave the total amount of UK power capacity available through the market at the same level.

RWE’s decision leaves just four coal-fired power plants still in operation across the UK, as domestic carbon pricing policies, rising CO2 prices in the EU emissions trading system (ETS), and plummeting costs for cleaner energy sources continue to hit coal plant profits hard.

The UK aims to close all remaining coal plants by 2025, and as a result coal power has been falling off the grid as renewables and gas power pick up the slack. Earlier this year the UK went its longest period since the Industrial Revolution without using any power from coal at 18 days and six hours, and records are expected to keep on tumbling in the coming months and years.

As a result UK coal plant operators have moved to shut loss-making sites. Last month SSE said it would close its 1.96GW Fidler’s Ferry facility in Cheshire by the end of March next year. That followed EDF Energy’s decision to close its 2GW Cottam coal plant in September due to tough economic conditions for coal.

The UK now has just four remaining coal plants in operation, including EDF’s 2GW facility in West Burton, Uniper’s 2GW Ratcliffe-on-Soar plant in Nottinghamshire, and the 560MW Kilroot facility near Belfast, which was recently sold to a subsidiary of Czerch firm Energetický a průmyslový (EPH).

Drax, meanwhile, is set to convert the remaining coal-fired units at its Yorkshire power station to run on gas and battery power, which would make the UK energy firm coal-free within the next several years.

LINK: RWE – Aberthaw power station to be closed

Centrica to exit gas and oil production

The UK’s Centrica announced Tuesday plans to exit oil and gas production, selling its majority stake in the recently formed Spirit Energy, to focus on their core business as a gas and power utility. Centrica, which has already announced plans to dispose of its nuclear power generation interests, said it expects to sell its 69% stake in UK-based Spirit Energy by the end of 2020.

The news comes at the time of some fairly grim financial results for Centrica, with revenues down, declining profits and an increase in debt, with the result being an announcement that Centrica’s CEO Iain Conn had agreed to step down from his position.

LINK: SPGlobal – Centrica exit gas & oil production

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