Weekly UK Insight - 8 May 2018

Gas

p/therm 27 Apr 18 4 May 18 Change
Day-Ahead (DA) 53.35 52.75 -1.1%
Jun 2018 51.84 52.28 0.8%
Q3-2018 51.90 52.90 1.9%
Winter 2018/19 58.66 59.24 1.0%
Summer 2019 44.77 45.35 1.3%

Source: Reuters

The UK’s Day-Ahead gas price fell 1.1% week-on-week as unplanned outages at SEGAL and Bacton Seal are both expected to end today, boosting gas imports in Britain. The UK gas system is broadly undersupplied, but supply should generally improve over the next few days.

Temperatures are currently well above the seasonal norm and are forecast to largely expected to remain around or above this level for the next few days. This would reduce the demand for heating, which constitutes approximately 40% of overall gas demand.

Send-out from LNG terminals into the UK system is currently at 10 mcm/day, with two further LNG cargoes arriving with the next fortnight.

Forward prices for Winter 2018/19 rose 1% as a weaker Pound versus the Euro made it more expensive to import gas from Continental Europe. While higher European gas prices and rising crude oil also provided some bullish support.

The risk of extended supply disruptions between Libya and Europe is a bullish factor for Britain’s Continental neighbours, in turn pushing up UK energy prices. Libyan gas typically travels via a sub-sea pipeline to Italy, and then onwards to the rest of Europe. However, internal conflict has resulted in a sharp drop in flows.

Combined with ongoing maintenance at a key Ukrainian pipeline transporting Russian gas, the result has been some fairly significant rerouting of Norwegian gas flows from the UK to Continental Europe.

UK NBP

Weekly UK Insight 8 May 2018
Source: Reuters

Power

£/MWh 27 Apr 18 4 May 18 Change
Day-Ahead (DA) 52.09 50.44 -3.2%
Jun 2018 51.61 51.76 0.3%
Q3-2018 51.60 52.13 1.0%
Winter 2018/19 56.51 56.98 0.8%
Summer 2019 45.98 46.30 0.7%

Source: Reuters

Day-Ahead power prices dipped 3.2% last week to £50.44/MWh, as an expected drop in demand due to milder temperatures and higher wind and solar generation.

Winter 2018/19 power prices also rose, gaining 0.8% in response to higher gas, European power and oil prices. German year-ahead power prices are currently at their highest level since the first half of 2013, with recent gains driving forward UK power prices.

UK POWER BASELOAD

Weekly UK Insight 8 May 2018
Source: Reuters

Oil

$/bbl 27 Apr 18 4 May 18 Change
Brent Crude Jul 18 74.64 74.87 0.3%

Source: Reuters

Brent crude oil prices edged marginally higher to a three-year high last week, up 0.3% to $74.87/bbl, as rising tension between the U.S. and Iran raised the likelihood of supply disruptions.

President Trump only has until 12 May to decide whether to restore the sanctions, which would probably result in a reduction of Iranian oil exports.  However, on Sunday Iran’s president Hassan Rouhani warned that Trump would be making a “historic” mistake if the US were to withdraw from its 2015 nuclear deal with Tehran.

BRENT CRUDE OIL – MONTH-AHEAD

Weekly UK Insight 8 May 2018
Source: Reuters

Exchange Rates & Economics

£/$ 27 Apr 18 4 May 18 Change
GBP/USD 1.3778 1.3530 -1.8%

Source: Reuters

The Pound Sterling declined in value versus the U.S Dollar following news that the UK services sector grew by less than expected in April. At first glance the services sector appeared to have recovered from March’s weather-related blip. However, with overall growth at the second weakest since September 2016 the resurgence has come too late.

Eurozone data has not been supportive either, but despite the handicap the euro is comparatively stronger against the weaker pound.

EXCHANGE RATE – GBP/USD (£/$)

Weekly UK Insight 8 May 2018
Source: Reuters

Regulatory and Market News

Subsidy-free solar and growing wind lifts UK up to 7th place on renewable attractiveness rankings

The UK has shot back up to 7th place in EY’s Renewable Energy Country Attractiveness Index (RECAI), which tracks the investment appetite for clean energy across the globe.

While the withdrawal of renewable energy subsidies prompted a collapse in the UK’s RECAI ranking previously, EY has pointed to the advent of subsidy-free solar and the development of onshore wind projects for merchant generation as being behind the UK’s “bounce” back up the chart.

Last summer renewables developer Anesco claimed a UK-first with the development of the Clayhill Solar Farm, a 10MW solar farm constructed alongside battery storage units without any subsidy support.

A number of other solar developers have also established their intent to bring similar projects over the coming 18 months, with Clean Energy News’ publisher Solar Media’s in-house market research division stating there to be up to 4.2GW of solar projects at various stages of planning in the UK.

Meanwhile EY has also pointed to an increasing number of investments in renewables, particularly solar, being made by oil and gas incumbents as they look to diversify their generation portfolios. Late last year BP acquired a 43% stake in solar developer Lightsource, echoing similar investments made by the likes of Shell, Total and Enel.

Ben Warren, global power & utilities corporate finance leader at EY, writes in this quarter’s RECAI that the triggers for these investments are both short- and long-term.

“In the long term, they recognize that climate change and the rise of electric vehicles will crimp demand for hydrocarbons. In the short term, they see the rapid growth of renewable energy and an opportunity to deploy their capital and expertise in a fast-evolving new energy market,” Warren wrote.

LINK: EY – RECAI May 2018

Beond provides further clarifications on the Medium Combustion Plant Directive

The Medium Combustion Plant Directive (MCPD) has passed into law. If you have a boiler or generator between 1MW and 50MW you need to know: is your deadline 2019, 2025 or 2030? There’s currently a lot of uncertainty.

We hope the Environment Agency will issue draft guidance in May and clarify some of the following points. If we ignore the 2025 and 2030 deadlines for the time being, then the most risk of being caught with a deadline in 2019 is highest for:

  • New equipment (combustion plant, including power generators installed after 1st December 2016)
  • Existing power generators >5MW with NOx emissions >500mg/Nm3 and operating for more than 50 hours per year
  • Existing power generators that sign-up to balancing services or Capacity Mechanism agreements after 31st October 2017 that remains in force after 31st December 2018
  • Existing power generators who triad-avoid may possibly be caught if the EA broadly re-interpret the rule above
  • Anyone caught out by local air quality problems

These particular generators may want to take advice on their different options.  For example, what would the cost and benefit be from retro-fitting NOx scrubbers or installing new gas or diesel generators before 2019?  What would the cost and benefit be from claiming an exemption from this legislation?

On Friday the Environment Agency published their first clarification on the MCPD – they are consulting on simple rules for low risk sites, e.g. new ones that comply with the emissions limits.

LINK: Beond – Clarifications on MCPD

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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.