Weekly UK Insight - 5 September 2016

Gas

p/therm 26 Aug 16 02 Sep 16 Change
Day-Ahead (DA) 28.80 25.45 -11.6%
October 16 33.31 32.51 -2.4%
Winter 16/17 40.55 39.05 -3.7%
Summer 17 37.77 36.41 -3.6%

Source: Reuters

Seasonal gas prices for Winter 2016/17 fell 3.7% as news that the maximum withdrawal capacity at Rough Storage would be higher than previously stated continued to drive price sentiment lower. Weaker oil markets also helped drive losses further along the curve.

The British spot gas price touched a fresh 7-year low extending losses last week, as the system struggled to cope with a massive supply glut. Gas prices in Britain are now among the lowest in the world with several factors driving the decline, including the inability to clear away surplus gas into storage sites fast enough, and strong Norwegian flows into Britain.

The gas system was oversupplied by 29 mcm/d on Friday reflecting a jump in Norwegian deliveries via the Langeled gas pipeline, driven by the producer’s inability to send gas to continental Europe due to technical issues. Exports from Britain to Belgium were nominated at near full capacity of 56 mcm/day as relatively cheap UK gas drove purchases by continental energy buyers.

Gas usage in power production dipped last week, as a pickup in wind speeds reduced the reliance on gas-fired power stations to meet domestic demand. Daily temperatures averaged 16°C but were still above seasonal normal levels, limiting 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 less than one month away.

UK NBP

Weekly UK Insight 5 September 2016
Source: Reuters

UK TEMPERATURE FORECAST

Weekly UK Insight 5 September 2016
Source: Reuters

TOTAL UK GAS STORAGE

Weekly UK Insight 5 September 2016
Source: Reuters

DAILY UK LNG SEND OUT

Weekly UK Insight 5 September 2016
Source: Reuters
LNG Tanker Regas volume (mcm) Expected Arrival Date From Port
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
Umm Bab 88 19 September Qatar Isle of Grain

Power

£/MWh 26 Aug 16 02 Sep 16 Change
Day-Ahead (DA) 35.50 33.35 -6.1%
October 16 39.84 39.21 -1.6%
Winter 16/17 45.74 44.80 -2.1%
Summer 17 38.89 38.01 -2.3%

Source: Reuters

Seasonal power prices for Winter 2016/17 declined 2.1%, settling at £44.80/MWh on Friday, as seasonal electricity markets once again took direction from the lower price of gas, as well as weaker sentiment in oil and carbon markets.

Hartlepool returned to service last week, adding around a third of its 620MW of nuclear capacity to the power grid.

Heysham 2-8 is expected to power down from 16 Sept to 25 Oct for scheduled refuelling, reducing nuclear capacity by 660MW for the 5-week outage.

UK POWER BASELOAD

Weekly UK Insight 5 September 2016
Source: Reuters

Oil

$/bbl 26 Aug 16 02 Sep 16 Change
Brent Crude Nov 16 49.92 46.83 -6.2%

Source: Reuters

Brent Crude fell 6.2% to $46.83/bbl last week, posting its biggest weekly drop since January, as oversupply issues once again exerted bearish pressure on oil prices.

Oil, which surged higher last month amid speculation that an informal meeting of OPEC nations in September could lead to some agreement on an output freeze, has faced renewed pressure as stockpiles of US crude oil rose more than expected in the last week.

However, increasing scepticism over any production freeze at the OPEC meeting this month has also derailed crude’s brief rally, dragging prices back below $47/bbl. Even if OPEC were to agree to freeze output it would take a long time to have a significant impact on the supply-demand balance.

BRENT CRUDE OIL – MONTH-AHEAD

Weekly UK Insight 5 September 2016
Source: Reuters

Exchange Rates & Economics

£/$ 26 Aug 16 02 Sep 16 Change
GBP/USD 1.3137 1.3288 1.1%

Source: Reuters

The value of the pound ended the week 1.1% higher compared to the US dollar, as the latest economic data revealed the UK’s manufacturing sector rebounded sharply in August. The weakening of the pound following the Brexit vote boosted exports, the survey found. The Markit/CIPS purchasing managers’ index (PMI) for the sector rose to 53.3 in August from July’s figure of 48.3. A figure above 50 indicates expansion.

Construction orders also improved, suggesting the UK economy is bouncing back after the Brexit vote, in further evidence that optimism is returning after the initial shock of the result. The economy has been boosted by The Bank of England’s recent decision to cut interest rates to a fresh low of 0.25% and unveil a £170bn stimulus package designed to prevent a deep downturn.

EXCHANGE RATE – GBP/USD (£/$)

Weekly UK Insight 5 September 2016
Source: Reuters

Carbon

/tonne 26 Aug 16 02 Sep 16 Change
EUA Dec 16 4.73 4.11 -13.1%

Source: Reuters

European carbon prices settled 13.1% lower last week, reflecting a decline in crude oil markets, weaker European power prices and higher wind output across Central Europe. The benchmark price for carbon allowances fell to its lowest level for almost three years on Friday following the first regular-sized auction after a month of supply at well under half of average levels.

CARBON ALLOWANCES – EUA DEC-2016

Weekly UK Insight 5 September 2016
Source: Reuters

Coal

$/tonne 26 Aug 16 02 Sep 16 Change
API2 CIF ARA 2017 57.40 58.45 1.8%

Source: Reuters

European coal prices rose 1.8% week-on-week, as another week of hot weather across continental Europe boosted the demand for electricity used in air conditioning. Coal prices continued to climb as China clamped down on domestic coal production. However, the oversupply is expected to return in the coming months, resulting in lower European prices.

COAL – API2 CIF ARA 2017

Weekly UK Insight 5 September 2016
Source: Reuters

Regulatory and Market News

Government confident on UK solar PV deployment despite impact of subsidy cuts

The UK Government remains bullish about the future for solar PV deployment in Britain, despite the latest statistics indicating levels of new capacity coming online have dropped sharply since subsidy changes took effect in spring 2016.

Figures published last week pointed to a flurry of capacity coming online in March 2016 just before the Renewables Obligation (RO) scheme closed to small-scale solar PV installations between 50kW and 5MW, and just before the final closure of the RO to grace period sites larger than 5MW.

UK Solar PV Deployment by Capacity

Weekly UK Insight 5 September 2016

A spokesman for the Department for Business, Energy and Industrial Strategy (DBEIS) said levels of deployment overall were therefore already ahead of its 2013 projection of 10-12GW of solar capacity by 2020. They added it was right subsidies should come down as solar costs fall in order to provide better value to taxpayers.

A DBEIS spokesperson said: “The government is committed to providing secure, clean and affordable energy now and in the future. Solar deployment is a UK success story with almost 11GW of capacity now installed. The past six months have seen another gigawatt of solar installed meaning we now expect to exceed our projections for 2020”.

Furthermore, the DBEIS spokesman said there were some projects deployed this year that are still awaiting accreditation from energy regulator Ofgem and had therefore yet to be added to the dataset.

LINK: DBEIS statistics for solar PV deployment

Eggborough plans to turn ageing coal-fired plant into new 2GW gas-fired power station

Plans to construct a new 2GW gas-fired power station on the site of the 49-year-old Eggborough coal-fired facility have been proposed by the plant’s owner.

A new underground gas pipeline would be constructed to connect the power station to the UK’s natural gas transmission network.

The Department of Business, Energy and Industrial Strategy (DBEIS) will need to give its approval and the company will need to make a final investment decision before construction can go ahead. A decision by the Business and Energy Secretary Greg Clark is expected by Autumn 2018.

The firm says it is also undertaking technical and environmental studies to identify the most appropriate location within the Eggborough Power Station site and a suitable route for the gas pipeline connection to the natural gas transmission network.

The new plant is likely to be operational in 2022 at the earliest, by which time Eggborough’s 2GW coal-fired station will be decommissioned.

LINK: Eggborough CCGT project website

Halogen spotlights to be phased out across Europe ahead of wider 2018 halogen bulb ban

Inefficient halogen spotlights began to be phased out from last Thursday (1 September), in a boost for super-efficient LEDs ahead of a wider halogen bulb ban in 2018. Directional halogen bulbs already in stores can still be sold after today but no new retailer orders will be possible for the spotlights, which can waste up to 10 times more energy than LEDs.

First hit by the ban will be GU10 halogen spotlights and PAR30 halogen floodlights (big reflector lamps). Bulbs with an energy label rating of B or above, such as low-voltage halogen spotlights, will not be affected.

British homes on the average tariff will pay £126 per socket over a 10-year period for halogen lights, compared to £16 for LEDs. The European Commission sees lightbulb efficiency rules as a no-brainer, arguing that EU standards across all product ranges will save the average consumer €465 a year on energy bills by 2020.

Beond is able to help clients take advantage of cost saving benefits available by adopting low energy lighting solutions, including LED lighting.

LINK: European Commission Halogen phase out

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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.