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Weekly UK Insight

The UK’s Day-Ahead gas price fell by 17.9% to 19.00 p/therm as the impacts of the Covid-19 pandemic weighs heavily on the UK wholesale market. The UK is currently oversupplied due to higher flows from Norway. Forecasts for lower gas demand for power generation from increased wind output also contributed to the sharp decline.

The Summer 2020 gas price fell by 13.6% week-on-week to 19.35 p/therm, with the equivalent Summer 2020 power seasonal price falling 8.6% to £27.82/MWh. Electricity demand dropped by a tenth in the UK last week as the British government enacted a lockdown in attempts to slow the spread of Covid-19. The ≈10% fall represents a 30% drop compared to the same week in 2019.

As well as a reduction in gas demand all across Europe, Norway have cancelled much of their planned gas maintenance for the second quarter of 2020 due to the Covid-19 outbreak which increases the likelihood of stronger than expected gas production for the start of Summer 2020. This represents one of the first supply side bearish factors since the impact of the pandemic on global gas demand started.

Seasonal contracts remain low and continued to fall. Sum-21 and Win-21 once again posted significant decreases across gas and power as the duration and longer-term effects of the Coronavirus outbreak are realised. Our recommendation is to lock in contracts before June 2020 ahead of expected volatility related to Covid-19 driven economic slowdown.

Weekly UK Insight 30 March 2020