Weekly UK Insight - 8 January 2018

Gas

p/therm 29 Dec 17 5 Jan 18 Change
Day-Ahead (DA) 53.00 52.50 -0.9%
Feb 2018 56.43 52.91 -6.2%
Q2-2018 46.10 45.44 -1.4%
Summer 2018 45.02 44.73 -0.7%
Winter 2018/19 53.10 52.94 -0.3%

Source: Reuters

The UK’s Day-Ahead gas price dipped 0.9% to 52.50 p/therm, as the UK gas system was 19 mcm oversupplied thanks to large pipeline imports from Continental Europe as well as strong Medium Range Storage (MRS) withdrawals.

Pipeline flows from Norway are at capacity and expected to remain as such unless there are significant unplanned outages.

UKCS production into St Fergus Mobil is about 10 mcm lower than normal, supporting spot prices a little, but other terminals are receiving gas at normal levels.

The cold snap forecast to start next Sunday is neither as long nor as acute as previous forecasts indicated.

With no LNG imports expected within the next two weeks, send-out from Britain’s LNG terminals is fairly low at 7 mcm/d.

Looking further forward, the global gas market remains relatively tight with countries such as Poland and Turkey increasing take of Qatari LNG this year, reducing potential arrivals to the UK.

The seasonal gas price for Summer 2018 dipped 0.7%, as Britain is expected to be well supplied throughout the summer months. Additionally, with Rough storage no longer injecting during this period, total UK gas demand should be notably lower than historical levels.

UK NBP

Weekly UK Insight 8 January 2018
Source: Reuters

Power

£/MWh 29 Dec 17 5 Jan 18 Change
Day-Ahead (DA) 46.06 51.02 10.8%
Feb 2018 54.34 51.73 -4.8%
Q2-2018 45.95 45.40 -1.2%
Summer 2018 44.91 44.50 -0.9%
Winter 2018/19 50.40 50.27 -0.3%

Source: Reuters

Day-Ahead power prices rose 10.8% to £51.02/MW, reflecting an expected increase in power demand in January compared to December’s holiday period when consumption was lower.

Outages at Hunterston B-7 (480 MW) and Hartlepool 2 (585 MW) have ended with both nuclear units having since returned to full capacity. Feb 2018 has fallen as there are currently no nuclear outages hindering power supply.

Seasonal power prices for Summer 2018 also fell, reflecting similar losses in the corresponding gas market.

UK POWER BASELOAD

Weekly UK Insight 8 January 2018
Source: Reuters

Oil

$/bbl 29 Dec 17 5 Jan 18 Change
Brent Crude Mar 18 66.87 67.62 1.1%

Source: Reuters

Brent crude oil prices rose 1.1% to $67.62/bbl during the first week of 2018, trading near its highest level since 2015. The sustained strength came after several major hedge funds placed major bets on crude oil’s gains continuing over the coming months, reflecting bullish drivers.

Iran’s oilfields have so far been unaffected by the largest anti-government protests in almost a decade, however renewed risks from OPEC’s third-largest producer has supported momentum as prices test new peaks.

BRENT CRUDE OIL – MONTH-AHEAD

Weekly UK Insight 8 January 2018
Source: Reuters

Exchange Rates & Economics

£/$ 29 Dec 17 5 Jan 18 Change
GBP/USD 1.3512 1.3568 0.4%

Source: Reuters

The Pound Sterling rose 0.4% against the US dollar last week as UK manufacturing output expanded at a robust pace, recording annualised growth of 3.3%. This confirms impressive growth remains in place, however the currency in only treading water against the Euro which was earlier boosted by impressive German manufacturing data.

While final 2017 figures are yet to be announced, growth in the UK economy over the year has been forecast around 1.7%, indicating something of a slowdown.

EXCHANGE RATE – GBP/USD (£/$)

Weekly UK Insight 8 January 2018
Source: Reuters

Regulatory and Market News

Parliament to debate rules to reduce emissions from Medium Combustion Plants and Generators

The Department for Environment, Food & Rural Affairs (Defra) has drafted new rules for Medium Combustion Plant Directive (MCPD) legislation that will reduce toxic emissions from boilers, generators etc.

Guidance issued by the department confirms that back-up generation can only run for 50 hours without having to meet strict emissions standards.

Why is it needed?

The MCPD is required to fill regulatory gaps in the regulation of emissions from combustion plant in the 1-50MWth (megawatts thermal input) as shown below, and forms part of the EU’s Clean Air Policy.

Key Dates

The MCPD entered into force on 18 December 2015 and should have been transposed into UK law by December 2017. Controls will apply to all new plant from December 2018, while existing plant have until October 2019, January 2025 or 2030 to comply with Emission Limit Values (ELVs), depending on capacity.

Who is affected?

It is estimated there are over 30,000 MCP’s in England and Wales alone, providing heat for large buildings (i.e. hotels, offices, hospitals, schools, prisons, housing), agricultural (greenhouse and livestock building heating, grain dryers) and industrial facilities, as well as providing power generation (often back-up generators).

The legislation will go to Parliamentary Committee next week and will be debated in January.

LINK: Defra – new MCPD rules on emissions

National Grid reduces procurement targets for upcoming T-1 and T-4 Capacity Market auctions

National Grid has published updated procurement targets for the upcoming T-1 and T-4 Capacity Market auctions, recommending that the auctions aim to procure 4.9 GW in the T-1 auction and 49.5 GW in the T-4 auction.

These targets are 1.1 GW and 0.6 GW less respectively than National Grid, in its role as the EMR Delivery Body, suggested in the guidelines published in August 2017.

The target capacity for the T-4 auction is also lower than the 51.7 GW target that was set for the previous T-4 auction (for delivery in 2020-21).

The Delivery Body said it may again adjust targets ahead of the auctions, which start on 30 Jan (T-1) and 6 February (T-4), dependent upon appeals following CM prequalification results.

Last month National Grid published its prequalification results for both auctions, confirming that a total of 15.58 GW of generators had been prequalified to compete in the T-1 auction and 91 GW of capacity had been either prequalified or conditionally prequalified to compete in the T-4 auction.

LINK: EMR Delivery Body – CM auction target changes

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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.