Weekly UK Insight - 8 July 2019

Gas

p/therm 28 Jun 19 5 Jul 19 Change
Day-Ahead (DA) 24.30 29.60 21.8%
Aug 2019 25.65 29.59 15.4%
Winter 2019/20 49.85 49.33 -1.0%
Summer 2020 44.00 44.05 0.1%

Source: Reuters

The UK’s Day-Ahead gas price jumped 21.8% to 29.60 p/therm, as several unplanned outages within Norway’s gas infrastructure left the UK gas system as much as 29 mcm/d undersupplied.

The return of Norway’s Troll gas field last week was expected to see pipeline flows increase. However, outages at Kollsnes (-34 mcm/d), Visund (-14 mcm/d) and Kvitebjørn (-2 mcm/d), as well as at Nyhamna reduced Norwegian imports by 18 mcm/d and with the outages expected to continue at least until mid-week.

Meanwhile LNG send-out from Britain’s terminals is fairly steady at 10 mcm/d. There are three LNG deliveries expected in the coming two weeks.

Aug-2019 gas also rose after an unplanned nuclear outage in France, driving month-ahead gas prices higher in the UK and other NW Europe markets.

Winter 2019/20 gas prices fell 1.0% to 49.33 p/therm, as a comfortable long-term UK supply-demand gas balance eases prices.

Rough is scheduled to be offline until October, likely for commercial reasons. This is about 3.5mcm/d of production.

Steady injections into European gas storage sees stock levels continue to rise, and are now 75% full. As a result, the current rate of injections means that Europe is on track to have 13 bcm of surplus gas that can’t be placed in storage ahead of the winter gas season.

UK NBP

Weekly UK Insight 8 July 2019
Source: Reuters

Power

£/MWh 28 Jun 19 5 Jul 19 Change
Day-Ahead (DA) 35.26 37.64 6.7%
Aug 2019 37.63 40.20 6.8%
Winter 2019/20 55.08 54.85 -0.4%
Summer 2020 48.26 48.26 0.0%

Source: Reuters

Day-Ahead power prices rose 6.7% to £37.64/MWh responding to a drop in wind output forecasts for the coming week and also driven higher by spot gas.

Aug-2019 gas also rose after an unplanned outage at France’s 900MW Dampierre 2 nuclear power unit also caused an increase in French prompt markets, driving month-ahead prices higher in the UK and other NW Europe markets.

Winter 2019/20 power prices dropped 0.4% to £54.85/MWh, reflecting declines in UK gas and oil prices.

However, rising coal and the weaker Pound Sterling stopped UK forward power prices from dropping further, with German power also providing significant support.

UK POWER BASELOAD

Weekly UK Insight 8 July 2019
Source: Reuters

Oil

$/bbl 28 Jun 19 5 Jul 19 Change
Brent Crude Sep 19 66.55 64.23 -3.5%

Source: Reuters

Brent crude oil prices recorded their worst weekly drop in five weeks, falling 3.5% week-on-week to $64.23/bbl, weighed down by fears of worsening economic conditions in major economies.

A trade war between the US and China has dampened prospects of global economic growth and oil demand.

Despite the OPEC and allies agreeing to an extension to production cuts through March 2020, oil participants were focused more on signs of weakening demand rather than on an extension that was almost a foregone conclusion.

BRENT CRUDE OIL – MONTH-AHEAD

Weekly UK Insight 8 July 2019
Source: Reuters

Exchange Rates & Economics

£/$ 28 Jun 19 5 Jul 19 Change
GBP/USD 1.2693 1.2523 -1.3%

Source: Reuters

The value of the Pound Sterling continued to decline versus the U.S. dollar and euro as currency investors and speculators alike prefer to avoid the Sterling while the UK government’s political direction is uncertain.

The chance of a ‘no deal’ Brexit is ever so slightly increasing as we head closer to the next deadline of October 31st and this is giving the markets the jitters once more.

Economic data has been fairy poor as well over the last few weeks as much of the country appears to be holding back and waiting to see what happens with Brexit. This is leading to fewer business decisions being made, businesses and individuals taking precautions and the housing market and retail sector slowing.

EXCHANGE RATE – GBP/USD (£/$)

Weekly UK Insight 8 July 2019
Source: Reuters

Regulatory and Market News

Nord Stream 2 abandons quest to lay pipeline in Danish territorial waters

Nord Stream 2 AG, the company building a €9.5bn pipeline to carry natural gas from Russia under the Baltic Sea to Germany, has withdrawn its application to lay pipe in Danish territorial waters, after the approval process dragged on for more than two years.

Of the four European countries whose approval is needed for it to cross their territory – Finland, Sweden, Denmark and Germany – only Denmark has so far withheld permission.

The obstacle is the Danish island of Bornholm, which lies roughly halfway between the coasts of Sweden and Poland. Nord Stream 2 AG’s two back-up routes, already submitted to Denmark for approval, give the island a wider birth to the north and south.

Because they skirt Danish territorial waters, these routes do not need the assent of Denmark’s foreign affairs minister and Denmark would be obliged to give approval under the United Nations Convention on the Law of the Sea, provided the pipeline meets environmental and ship safety standards.

When complete, possibly by the end of next year, the line is expected to transport 55 billion cubic metres of gas to the EU, doubling the amount of Russian gas in Europe and providing enough energy to run 26 million homes. This will compensate for continuing declines in North Sea production, which Nord Stream says will halve by 2035.

The project has been one of the most controversial in recent European history, with Germany joining Russia to promote the line, whereas the US, the Ukraine and European countries such as Poland and Lithuania are against it, arguing that it will make Europe more vulnerable to Russian pressure.

To date, about 60% of the pipeline has been laid.

LINK: Nord Stream 2

Biogas ‘could slash global greenhouse gas emissions by up to 13%’

The base of the first nuclear reactor at Hinkley Point C has been completed in what is being described as “its biggest milestone” so far.

Biogas could be used to cut global greenhouse gas emissions by 13% according to the World Biogas Association (WBA), which claims the fuel has a great potential to address a wide range of environmental and economic challenges around the world.

It suggests biogas, which is a mixture of gases produced by the breakdown of organic matter in the absence of oxygen, could be used to help cut global greenhouse gas emissions from 3,290 million tCO2 equivalent to 4,360 million tCO2 equivalent.

This would be achieved by substituting coal, oil and gas in international energy mixes, as well as avoiding emissions through the better management of organic wastes and reducing the need for fossil fertiliser manufacture, crop burning and deforestation.

The report highlights that currently, only 2% of available feedstocks undergo anaerobic digestion and are turned into biogas – these wastes include food, sewage, agricultural slurry and leftover crops. As these feedstocks are available in nearly every country around the world, there is a huge scope for growth.

The WBA says the biogas production process not only creates renewable energy, heat and transport fuel but suggests it also helps bolster food security, manage waste, protect water bodies, restore soil health, reduce air pollution and improve sanitation.

 

LINK: World Biogas Association

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