There have been fresh gains in the wholesale gas and power markets in the last week. The rise has been led by the prompt and concerns that recent tightness in supplies will continue over the winter. The increase has pulled contracts to fresh highs for the year.
Day-ahead power prices have been pushed higher in recent days due to a combination of weak wind, rising demand and expectations of tight supply margins. System operator, National Grid has been reporting that the difference between supply and demand could drop to just 1% this week. However, its recent Winter Outlook report is indicating that margins through the current season could average 6.6%. The current supply tightness is been exacerbated by nuclear problems in France. There are reports of a further five nuclear power plants going offline before the New Year and the UK is already exporting power to France. Ongoing supply issues will reduce the potential for the UK to import over the winter if required. In addition, higher European prices will also make attracting supply via the Interconnector to the UK more expensive. Current weakness in the pound will also make matters worse. Meanwhile, peak demand is also expected to rise next month with the end of Daylight saving, making evenings darker and longer.
Supplies have tightened for the gas market as well, with rising demand in response to lower temperatures and LNG sendout remaining weak, with only one tanker being booked so far for October. Meanwhile, Rough withdrawals are not expected to be available until November at the earliest. This is putting increasing pressure on the need for imports from Norway and the Netherlands, as well as medium-range storage. In a similar situation to the power market, any strong reliance on imports will come at a higher cost than might have been the case due to the weakness on the pound.