Weekly UK Insight - 9 December 2019

Gas

p/therm 29 Nov 19 6 Dec 19 Change
Day-Ahead (DA) 40.45 33.35 -17.6%
Jan 2020 42.76 39.05 -8.7%
Summer 2020 37.80 34.70 -8.2%
Winter 2020/21 47.83 45.70 -4.4%

Source: Reuters

The UK’s Day-Ahead gas price fell 17.6% to 33.35 p/therm, as strong gas send-out from all three UK LNG terminals left the UK gas system around 18 mcm/d oversupplied.

Total LNG send-out is forecast at 136 mcm/d this morning, up from 121 mcm/d last week. The increase reflects the fact that 12 LNG cargoes are scheduled to be delivered into UK terminals within the next two weeks.

Jan 2020 gas prices also fell 8.7% reflecting Europe’s well stocked gas storage, mild weather forecasts and weaker power demand. Plentiful LNG deliveries have meant that withdrawals from gas storage has been limited. As a result, gas stockpiles in the UK are still around 95% of total capacity.

The Summer 2020 gas price declined 8.2% week-on-week to 34.70 p/therm. The UK and Europe’s high levels for gas storage, combined with record deliveries of LNG, mean the outlook for next summer’s supply and demand balance is already looking extremely comfortable.

The 12 LNG tankers arriving in the UK over the next two weeks originate from seven different countries (Qatar, USA, Singapore, Greece, Trinidad and Tobago, Peru and Russua), further demonstrating the growing number of global gas supply sources available to Britain during times of peak demand.

UK NBP

Weekly UK Insight 9 December 2019
Source: Reuters

Power

£/MWh 29 Nov 19 6 Dec 19 Change
Day-Ahead (DA) 48.02 38.72 -19.4%
Jan 2020 49.70 46.80 -5.8%
Summer 2020 44.41 42.30 -4.8%
Winter 2020/21 51.81 50.34 -2.8%

Source: Reuters

Day-Ahead power prices fell 19.4% to £38.72MWh, reflecting an increase in wind output and significantly cheaper spot gas prices.

Summer 2020 power prices dropped 4.8% to £42.30/MWh in response to losses in the equivalent gas, coal and carbon markets, with the stronger Pound Sterling also a factor in making foreign energy imports less expensive.

Following delays, France’s nuclear plant Cruas 2, which has been offline for several weeks following a 5.1 magnitude earthquake, is expected to restart today.

UK POWER BASELOAD

Weekly UK Insight 9 December 2019
Source: Reuters

Oil

$/bbl 29 Nov 19 6 Dec 19 Change
Brent Crude Feb 20 62.43 64.39 3.1%

Source: Reuters

Brent crude oil prices rose 3.1% last week to $64.39/bbl after major oil producers led by Saudi Arabia and Russia agreed to cut output by an extra 500,000 bpd in Q1-2020.

The countries involved pump over 40% of the world’s oil, and their new combined cuts amount to 1.7 million bpd or 1.7% of global production.

“We really do see some risks of oversupply in the first quarter due to lower seasonal demand for refined products and for crude oil,” said Russia’s Energy Minister Alexander Novak.

However, the oil producers stopped short of pledging action beyond March when the current agreement ends.

BRENT CRUDE OIL – MONTH-AHEAD

Weekly UK Insight 9 December 2019
Source: Reuters

Exchange Rates & Economics

£/$ 29 Nov 19 6 Dec 19 Change
GBP/USD 1.2933 1.3135 1.6%

Source: Reuters

The Pound Sterling hit a 7-month higher versus the U.S. dollar, as traders bet on the Conservative party securing a majority in Thursday’s UK General Election.

Markets view a healthy Tory majority as the best outcome for UK risk assets, at least in the short term, as it would lead to an orderly withdrawal from the EU at the end of January following years of uncertainty.

However, several investors have warned the currency is now vulnerable to any tightening of the polls.

Given Boris Johnson’s pledge not to extend the European Union free trade negotiations past the end of next year, many investors and analysts have warned that any recovery could be short lived as Brexit risks return.

EXCHANGE RATE – GBP/USD (£/$)

Weekly UK Insight 9 December 2019
Source: Reuters

Regulatory and Market News

Net zero impossible for UK without ten-fold increase in energy storage capacity, says Drax

Great Britain will need at least 30GW of energy storage if it hopes to reach net zero by 2050, according to new research produced for Drax.

The analysis, produced by Imperial College for energy giant Drax’s Energy Insights paper, states that as intermittent generation from renewables like wind and solar grows, the country will have to increase its storage capacity tenfold.

As efforts to decarbonise power continue, Britain is likely to source 70-80% of its power from wind and solar power by 2050. Storage will be needed to balance the peaks and troughs created by such generation, with the majority of power generated in the middle of the day and the highest demand in the evening generally.

The analysis showed that Britain would require storage capacity of around a third of peak electricity demand. But this could be a huge challenge for Britain, which currently only has 3GW of storage, but will need to increase it to 30GW.

Dr Iain Staffell said that storage stood to play a pivotal role in dictating the pace, scale and cost of the energy transition.

“We’ll also need a rapid expansion of other forms of flexibility, such as demand side response, interconnectors and fast-acting flexible power stations as well as from pumped hydro storage, which is currently the biggest storage technology, and batteries where costs are falling.”

Storage technology has already proven its value, when lightning hit on Friday 9 August 2019 causing first the Little Barford CCGT plant and then the Hornsea wind farm to trip leading to widespread blackouts. In response, 475MW worth of storage came online, and in just 3:47 minutes, grid frequency had been restored to its usual operating limits.

https://electricinsights.co.uk/#/reports/report-2019-q3/detail/how-much-energy-storage-will-we-need

Ofgem plans radical reform of Transmission and Distribution charges

On 21 November 2019, Ofgem published “Targeted Charging Review Decision Document”

They want to change the recovery of the vast majority of transmission costs and a large part of distribution costs “the residual costs”. Currently customers pay “triad charges” and “red amber green rates” either explicitly on their bills or hidden within their pence per kWh charges.

Ofgem want to greatly reduce these charges and move the cost burden to higher availability charges. Ofgem believe that “on-site” or “behind the meter generators” such as roof-top solar, CHP systems and back-up generators are saving too much when the switch-on and generate their own power.

Instead Ofgem want to charge everyone who is connected to the electricity network for having access to the network even if they are generating their own power for some or most of the years.

The target implementation dates are April 2021 for transmission charges and April 2022 for distribution charges.

https://www.ofgem.gov.uk/publications-and-updates/targeted-charging-review-decision-and-impact-assessment

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