Weekly UK Insight - 7 October 2019

Gas

p/therm 27 Sep 19 4 Oct 19 Change
Day-Ahead (DA) 24.80 27.75 11.9%
Nov 2019 44.13 41.90 -5.1%
Summer 2020 44.79 43.14 -3.7%
Winter 2020/21 53.94 52.63 -2.4%

Source: Reuters

The UK’s Day-Ahead gas price jumped 11.9% to 27.75 p/therm as colder weather and a drop in LNG send-out from the Isle of Grain terminal and gas storages left the UK system around 16 mcm/d undersupplied.

In addition, gas pipeline flows through Norway’s Langeled and Vesterled pipelines dropped last week as extended maintenance at several gas field restricted imports to the UK.

Norwegian gas field operators have also decided to reduce output as a result of low spot prices. Prices further out are currently higher so it makes financial sense to limit supplies until prices rise.

Summer 2020 gas prices slid 3.7% lower to 43.14 p/therm, as plentiful gas storage across Europe and mild long-term weather forecasts means that gas stocks are not expected to deplete too significantly over the winter months.

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

Further out, Winter 2020/21 gas prices recorded a 2.4% decline. Plentiful gas storage across Europe and the consistent growth in global LNG export terminals means that total gas supply is increasing year-on-year.

LNG production in the United States and Australia are the big contributors to new LNG projects, freeing up Qatari LNG to be supplied to Britain.

UK NBP

Weekly UK Insight 7 October 2019
Source: Reuters

Power

£/MWh 27 Sep 19 4 Oct 19 Change
Day-Ahead (DA) 32.10 41.79 30.2%
Nov 2019 51.39 48.62 -5.4%
Summer 2020 48.80 46.50 -4.7%
Winter 2020/21 55.52 53.57 -3.5%

Source: Reuters

Day-Ahead power prices jumped 30.2% to £41.79/MWh, reflecting higher spot gas and lower wind output.

Summer 2020 power prices slid 4.7% to £46.50/MWh tracking lower gas prices, and as previous concerns over nuclear outages continue to subside.

Winter 2020/21 power prices also fell as lower gas, oil, coal and carbon reduced the expected cost of European power generation from fossil fuels.

UK POWER BASELOAD

Weekly UK Insight 7 October 2019
Source: Reuters

Oil

$/bbl 27 Sep 19 4 Oct 19 Change
Brent Crude Dec 19 61.91 58.37 -5.7%

Source: Reuters

Brent crude oil prices posted their biggest weekly loss since mid-July, falling 5.7% last week, settling on Friday at $58.37/bbl after a run of weak economic data underlined concerns over global demand. U.S. crude inventories also rose 3.1 million barrels last week, more than forecast.

This year, Brent has risen about 7%, supported by OPEC and Russian supply cuts, plus involuntary outages such as a drop in Iranian exports due to U.S. sanctions.

Nonetheless, concern about the worsening economic outlook has overshadowed support from the supply side and the prospect of further output disruption in the Middle East appears of limited concern to investors.

BRENT CRUDE OIL – MONTH-AHEAD

Weekly UK Insight 7 October 2019
Source: Reuters

Exchange Rates & Economics

£/$ 27 Sep 19 4 Oct 19 Change
GBP/USD 1.2288 1.2332 0.4%

Source: Reuters

The Pound Sterling strengthened in value after the U.S. dollar and euro both weakened. Key economic metrics are signalling a major concern for the U.S. and the European Union as tensions between the two reach new highs.

The latest readings from prominent purchasing managers’ indexes show manufacturing sectors the US and EU struggling amid global trade conflict and slowing economies. Service and non-manufacturing industries also slowed through September in both areas.

IHS Markit’s Eurozone manufacturing index fell to 45.7 in September, down from 47 the month prior. Any figure below 50 represents a decline in manufacturing activity.

EXCHANGE RATE – GBP/USD (£/$)

Weekly UK Insight 7 October 2019
Source: Reuters

Regulatory and Market News

Ofgem orders four suppliers to pay £14.7 million in Renewables Obligations by 31 October

Ofgem has ordered four UK energy suppliers to pay a total of £14.7 million in outstanding payments to comply with the Renewables Obligation scheme.

Four suppliers missed the original 1 September 2019 deadline and have not provided Ofgem with adequate assurances that they will pay by the late payment deadline.

If suppliers fail to pay by 31 October, Ofgem could start the process to revoke their licence to supply energy. Ofgem’s enforcement action sends a strong signal that all suppliers must meet their obligations or face the consequences

The suppliers and outstanding amounts are:

  • Delta Gas and Power Ltd – £91,937
  • Gnergy Ltd – £637,876
  • Robin Hood Energy Ltd – £9,435,925
  • Toto Energy Ltd – £4,555,880

Under the Renewables Obligation schemes, suppliers must demonstrate they have sourced enough electricity from renewable sources to meet their obligation by presenting Renewables Obligation Certificates (ROCs) to Ofgem. If suppliers do not have enough ROCs to meet their obligation, they must make up the shortfall by paying into a buy-out fund administered by Ofgem by 31 August.

Ofgem has engaged with all suppliers that missed the 31 August and 1 September deadlines to seek assurances that they will be in a position to make the necessary payments by the late payment deadline.

The named suppliers failed to provide satisfactory assurances and Ofgem believes that they are likely to breach their obligations.

Other suppliers missed the 31 August deadline but have given satisfactory assurances to Ofgem on meeting their obligations.

Mary Starks, executive director of consumers and markets said: “The Renewables Obligation schemes provide important support to renewable electricity generators and play an important role in Great Britain’s journey to a net zero emission economy by 2050.

Supplier failure to comply with the schemes undermines the integrity of the schemes and is unacceptable. It also adds to the costs of other suppliers who do meet their obligations as they have to absorb or make up any shortfall. This enforcement action sends a strong signal that suppliers must meet their obligations, or pay the consequences which could mean losing their licence.”

LINK: Ofgem – RO Mutualisation Oct 2019

Scottish Government confirms policy to ban fracking

The Scottish Government has confirmed a policy of no support for unconventional oil and gas (UOG), which includes fracking. Speaking at Holyrood, Energy Minister Paul Wheelhouse confirmed the government will not issue any licences for projects that use UOG extraction, including those exploring for shale gas using hydraulic fracturing methods or coalbed methane projects.

He set out the factors that led to the decision, including the incompatibility of UOG development with Scotland’s climate change policy, which includes a target for net zero emissions by 2045 – five years ahead of the UK Government’s goal.

Mr Wheelhouse said there has been a “dramatic change in public perceptions” of the environment, the climate crisis and the expectations of government to respond.

He said: “I can confirm today the Scottish Government final policy position is that we do not support the development of unconventional oil and gas – often known as fracking – in Scotland. We considered carefully how support for the development of onshore unconventional oil and gas sites with our policies on climate change, energy transition and the decarbonisation of our economy. We have concluded that it is incompatible.”

No fracking has taken place in Scotland since the government placed a moratorium in 2013.

LINK: Scottish Gov – Fracking ban

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