Annual gas and power prices have eased back from their highs of last week, although there has been minimal change in the energy drivers.
There remain concerns over the supply-demand fundamentals for the current winter, particularly for power. However, the gas system has been coping well with the recent cold weather, and power systems – while tight – have not triggered any major alerts. Towards the end of the week, there has also been fresh news regarding the French power market which has contributed to weakness in power.
In recent weeks, the UK energy markets had been pulled up by already tight power margins and expectations of worse to come with colder weather. This position was enhanced by French nuclear maintenance. This meant that the UK was exporting more power to the country, and not being able to import to help balance the local system. This contributed to system tightness and Day-ahead prices pushing beyond £100/MWh on a number of occasions. While nuclear outages are expected to continue through to 2017, France has now indicated some of the reactors should be returning in the near-term, taking some of the pressure off the UK market. At the same time, power demand has not been outturning at the level National Grid has been expecting, potentially as a result of consumers reacting to calls for Demand Side Response to the recent system issues. The UK power system is expected to remain tight over the winter, but its ability to cope with the recent cold snap has taken some of the support from the market.
Despite higher demand for heating and continued strong use of gas in generation, the gas system has been well supplied. This has been helped by imports, with the addition of flows through the Interconnector, the use of medium-range storage, and an increase in LNG sendout. The LNG delivery schedule remains light, with only two tankers confirmed for November, but there are indications of at least two more, which is still an improvement on last month. At the same time, while delayed, the return of Rough for withdrawals is expected at the end of the month, providing additional supply options.