Annual gas and power prices have continued to rise, once again reaching new highs for the year.
This was amid very little change in the drivers for energy contracts. The main focus remains on the winter supply-demand balance. Recent tight supplies have increased concerns of even worse conditions deeper into winter if energy demand should rise sharply due to lower temperatures and darker nights. At present, there are forecasts of a cold snap going into next week. This could be the first real test of the UK gas and power supply systems and might set the trend for prices thereafter.
A notable change from last week was the news that Centrica was delaying the restart of operations at its Rough long-range storage site. The site had been expected to be providing the system with gas from the start of November, but it is now not likely to be withdrawing until the second half of the month. The site had closed due to safety issues, which had already limited the gas that was able to be put into storage. This had left the site at only 40%. The delay in allowing the market access to the limited supplies that were available coincides with the first cold-snap of the season, which helped support prices further. The situation means that the UK is remaining reliant on medium-range storage and imports to meet rising demand. LNG sendout remains subdued, with the delivery schedule remaining weak. There is still only one cargo of LNG booked for delivery this month.
Meanwhile, the clock-change was expected to lead to a sharp increase in power demand. On the Monday following the clock-change, however, demand was comparable to the week before, coming in over 2GW below forecasts. Since then, demand has risen up past 46GW and is forecast to rise even further next week amid the expected cold snap, to over 48GW. National Grid is currently expecting tighter supply margins around this point, although at present there are no negative margins as had been forecast for the start of this week. The UK remains heavily dependent on gas-fired generation to meet demand as the UK adapts to lower coal capacity and reduced import availability. At the same time, France continues to struggle with low nuclear plant availability, affecting interconnection across Europe.