Weekly UK Insight - 5 November 2018

Gas

p/therm 26 Oct 18 2 Nov 18 Change
Day-Ahead (DA) 63.10 62.00 -1.7%
Dec 2018 69.42 67.55 -2.7%
Q1-2019 69.53 67.62 -2.7%
Summer 2019 58.65 56.34 -3.9%
Winter 2019/20 67.22 64.91 -3.4%

Source: Reuters

The UK’s Day-Ahead gas price dropped 1.7% to 62.00 p/therm as strong gas pipeline flows from Continental Europe, warmer temperatures and stronger wind production has left the UK gas system around 11 mcm oversupplied.

Imports via Norway’s Langeled and Vesterled pipelines, and domestic flows from the UK Continental Shelf, are all flowing fairly close to capacity. Norwegian flows are forecast to remain close to capacity for the rest of winter, barring major outages.

UK LNG terminals are forecasting four cargo deliveries over the next two weeks. However, with the UK’s Medium Range Storage facilities already close to 100% full, there is little room for further LNG arrivals until gas demand picks up.

Temperatures are forecast to rise above seasonal normal levels over the next fortnight, which should result in lower gas demand to be used in heating.

Summer 2019 gas prices tracked winter prices lower, falling 3.9% to 56.34 p/therm week-on-week, tracking lower prices for oil, coal, carbon and European gas prices. The supply and demand of Northwest Europe’s gas market is looking fairly comfortable heading into the peak winter demand season. UK Medium Range Storage has already reached capacity, while strong gas injections across Northwest Europe have seen gas storage levels largely catch up with historic normal levels.

UK NBP

Weekly UK Insight 5 November 2018
Source: Reuters

Power

£/MWh 26 Oct 18 2 Nov 18 Change
Day-Ahead (DA) 62.01 55.16 -11.0%
Dec 2018 65.16 63.19 -3.0%
Q1-2019 65.48 63.31 -3.3%
Summer 2019 56.36 54.90 -2.6%
Winter 2019/20 62.33 60.69 -2.6%

Source: Reuters

Day-Ahead power prices fell 11.0% to £62.01/MWh as lower spot gas prices and very strong wind output reduced the cost of power production.

Summer 2019 power prices declined 2.6% to £54.90/MWh tracking seasonal losses in the UK gas market, while European power prices and coal also fell reducing the cost of input fuels to be used in power generation.

Signs of progress in Brexit negotiations strengthened the Pound, making interconnector power imports from Continental Europe less expensive.

UK POWER BASELOAD

Weekly UK Insight 5 November 2018
Source: Reuters

Oil

$/bbl 26 Oct 18 2 Nov 18 Change
Brent Crude Jan 19 77.62 72.83 -6.2%

Source: Reuters

Brent crude oil prices slid 6.2% last week, closing down at $72.83/bbl, as investors worried about oversupply after the United States said it will temporarily exempt eight countries (China, India, South Korea, Turkey, Italy, the United Arab Emirates, Japan and Taiwan) from Iran-related sanctions. The waivers could allow top buyers to keep importing Iranian oil after economic penalties come back into effect on 5th November.

Traders believe that worries about tightening supplies due to the loss of Iranian barrels in the market have eased. On top of that, lower global oil demand has helped ease prices.

BRENT CRUDE OIL – MONTH-AHEAD

Weekly UK Insight 5 November 2018
Source: Reuters

Exchange Rates & Economics

£/$ 26 Oct 18 2 Nov 18 Change
GBP/USD 1.2831 1.2970 1.1%

Source: Reuters

The value of the Pound Sterling rose 1.1% versus the U.S. Dollar last week as UK and EU negotiators were reported to have reached agreement on the financial services aspect of a Brexit deal.

The EU would grant the UK “equivalent” status, giving UK firms the same access as Wall Street, under an agreement which is nearing completion, UK officials said. Banks and insurers have demanded clarity on the deal ahead of next March when Brexit is due to trigger.

EXCHANGE RATE – GBP/USD (£/$)

Weekly UK Insight 5 November 2018
Source: Reuters

Regulatory and Market News

Cuadrilla extracts first shale gas at Preston New Road fracking site in Lancashire

Cuadrilla extracted its first shale gas from its site in northwest England, it said on Friday, after it began fracking operations there just over two weeks ago.

Cuadrilla said the gas flows were small but coming at such an early stage of the project were evidence of the potential of the site.

Fracking started at the New Road site on 15th October but has been halted and restarted twice since then after small earth tremors were detected. Britain’s regulatory system calls for any fracking to be paused if any tremor of magnitude 0.5 or above is detected.

Cuadrilla said it plans to fully test flow rates from the current two exploration wells towards the end of 2018 and into the New Year to determine whether full-scale gas extraction would be viable.

Despite opposition from environmental groups, Britain’s government is supportive of the shale gas industry and is keen to reduce the country’s reliance on imports of natural gas, which is used to heat around 80 percent of Britain’s homes.

The British Geological Survey estimates shale gas resources in northern England alone could contain 1,300 Tcf of gas, 10% of which could meet the country’s demand for almost 40 years.

LINK: Cuadrilla – Preston New Road Fracking

No legal barriers to cross-border electricity trading in no-deal Brexit scenario, assures National Grid

National Grid has given assurances there will be no legal barriers to continued cross-border electricity trading in the case of a no-deal Brexit. However, recent changes to day-ahead trading arrangements will have to be rolled back if the UK leaves the EU without a withdrawal agreement. Planned reforms to intraday trading arrangements will also need to be scrapped.

National Grid interconnectors regulation manager Mark Duffield, said: “There isn’t any kind of legal right or obligation that exists for interconnectors to have to be switched off. We’re linking two national markets and those national markets will still exist as they currently do in their own right. There’ll still be a Dutch power market. There’ll still be a UK power market post-Brexit. They will still operate in their own national ways.

“The interconnector will still have a connection agreement in the UK under a UK framework. It will still have a connection agreement in the Netherlands under a Dutch framework. We’ll still have the right to import or export under those physical connection agreements.”

LINK: National Grid – Interconnectors post-Brexit

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