Weekly UK Insight - 8 April 2019

Gas

p/therm 29 Mar 19 5 Apr 19 Change
Day-Ahead (DA) 35.45 40.20 13.4%
May 2019 34.61 41.09 18.7%
Winter 2019/20 50.95 57.54 12.9%
Summer 2020 42.85 48.06 12.2%

Source: Reuters

The UK’s Day-Ahead gas price surged 13.4% to 40.20 p/therm as an unexpected drop in Norwegian gas flows to the UK and Continental Europe last week meant gas networks were more reliant on Medium Range Storage withdrawals and LNG imports to meet demand.

Gas flows via Norway’s Langeled pipeline fell unexpectedly on Friday to just 43 mcm/d (compared to the pipelines maximum capacity of 74 mcm/d).

Colder temperatures last week also increased Britain’s heating demand, leaving the UK gas system around 15 mcm/d undersupplied.

National Grid’s forecast gas demand is expected at 256 mcm/d, notably above the seasonal normal demand of 222 mcm/d.

LNG operators are forecasting six cargo deliveries into UK terminals over the next two weeks. The higher number of LNG arrivals means that total LNG send-out rose to 70 mcm/d from all UK terminals.

Winter 2019/20 gas prices rose 12.9% to 57.54 p/therm, pushed higher by rising traders locking out their positions ahead of the weekend following news of Norway’s unexplained decline in gas pipeline flows. Rising crude oil and carbon prices also contributed to gains.

However, prices are already falling again this morning as Norwegian pipeline flows return to normal and temperatures trend upwards. Winter 2019/20 has already traded down at 56.85 p/therm this morning, a 1.2% decline compared to last week’s close.

UK NBP

Weekly UK Insight 8 April 2019
Source: Reuters

Power

£/MWh 29 Mar 19 5 Apr 19 Change
Day-Ahead (DA) 41.26 45.39 10.0%
May 2019 41.46 47.06 13.5%
Winter 2019/20 53.98 59.48 10.2%
Summer 2020 46.02 50.68 10.1%

Source: Reuters

Day-Ahead power prices jumped 10.0% to £45.39/MWh, in response to more expensive spot gas prices in Britain and across Western Europe.

Summer 2019 power prices rose 10.2% to £59.48/MWh, tracking gains in UK gas and European power prices, as well as higher oil and carbon markets, which increased the cost of coal as an input fuel for power production.

UK POWER BASELOAD

Weekly UK Insight 8 April 2019
Source: Reuters

Oil

$/bbl 29 Mar 19 5 Apr 19 Change
Brent Crude Jun 19 68.39 70.34 2.9%

Source: Reuters

Brent crude oil prices rose 2.9% to $70.34/bbl, a 5-month high, as Libyan civil war threatens supply in the Middle East. Over the weekend eastern Libyan military commander Khalifa Haftar mounted an assault on Tripoli, the capital, and the United Nations-backed government there. Libya was the 20th largest petroleum producer in 2018, at more than a million barrels per day.

U.S. sanctions on Iran and Venezuela and the ongoing supply cuts from OPEC also drove crude oil prices above $70 for the first time since November, with many market participants expecting prices to reach $75/bbl fairly soon.

BRENT CRUDE OIL – MONTH-AHEAD

Weekly UK Insight 8 April 2019
Source: Reuters

Exchange Rates & Economics

£/$ 29 Mar 19 5 Apr 19 Change
GBP/USD 1.3031 1.3036 0.0%

Source: Reuters

The value of the Pound Sterling fell versus the U.S. dollar was essentially unchanged week-on-week, despite uncertainty around Brexit delays.

After failing to get enough MPs to support her EU withdrawal agreement, Theresa May is hoping she can win Labour backing through the cross-party talks.

With seemingly little progress so far, the prime minister might eventually have to ditch her opposition to a post-Brexit customs union with the EU, which Labour is demanding. This would anger a large number of Conservative MPs, but might allow Mrs May to finally get a deal through the House of Commons.

EXCHANGE RATE – GBP/USD (£/$)

Weekly UK Insight 8 April 2019
Source: Reuters

Regulatory and Market News

Government reviews UK gas security as lack of Rough storage increases price volatility

The UK Government is carrying out an internal review of the UK’s gas security following the closure of the Rough storage facility in the North Sea, Claire Perry has revealed.

In a letter with the Department for Business, Energy and Industrial Strategy (BEIS) select committee, which has been conducting an inquiry into the UK’s post-Rough gas security, the energy and climate change minister writes that the department ordered further research following a workshop held in March 2018.

Centrica closed Rough, which was the UK’s biggest gas store, last year. Gas storage is used as a buffer at times of high demand and disrupted supply, which can result from infrastructure outages.

The ageing and loss-making facility required an estimated of £1 billion worth of refurbishment work, which was expected to take around five years to complete.

The research is focusing on the interactions between gas and the electricity systems during stress situations, like last winter’s “Beast from the East” cold snap, and the current status and outlook for gas supply flexibility.

BEIS is commissioning external research on the interaction between gas and electricity systems, which is due to be delivered this summer.

Investment in new, large gas storage sites in Britain which can help provide a buffer in times of high demand and reduced supply is seen by operators as unlikely due to market prices offering low returns.

This is due to weak gas price spreads, the difference between gas prices in summer and winter, which are not allowing operators to cover their fixed costs. The spread has narrowed in recent years, making it less profitable to buy gas in the warmer months, store it and sell when temperatures fall and prices rise.

And it says that retaining the Rough facility would have cost gas consumers more in the long run than other mechanisms for ensuring security of supply, such as liquid natural gas terminals and interconnectors with the continent.

LINK: Utility Week – Gov reviews UK gas storage

Octopus Energy offers new tariff for solar power export as Feed-in Tariff closes

Octopus Energy has launched a new tariff that will incentivise householders who export excess solar power to the grid. It comes as the government’s Feed-in Tariff (FiT) scheme, which paid people for installing renewable and low carbon electricity generation technologies and producing their own power, closed on 1 April 2019.

That means consumers who install small-scale solar panels will no longer earn revenue by selling excess energy via government subsidies.

The new ‘Outgoing Octopus’ tariff is offering customers two rates for selling electricity back to the grid: a fixed rate of 5.5p for every kWh sold or a variable rate depending on what generators are being paid in that half hour to sell to the grid – consumers will be told of the half hour prices the day before.

‘Time of use’ customers who pay for electricity at its live cost rather than a fixed rate could potentially earn more by storing excess power in a battery and selling it to the grid at times when the price is high.

Octopus Energy CEO Greg Jackson said: “Outgoing Octopus is designed to make it easy for households to choose to go green – by paying households to adopt solar, we bring locally generated energy to more people and help the UK adopt a cleaner, cheaper energy system.

LINK: Octopus Energy – ‘Outgoing’

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