Annual gas and power prices have continued to trade sideways in the last week. Contracts have stabilised around 10% below the multi-year highs reached in early November but are still elevated from levels seen at the end of the summer.
The UK continues to demonstrate a strong supply response to winter demand levels. Recent isolated cold snaps have been met with minimal disruption, as the UK imports supply from Europe over the Interconnector, utilising healthy storage inventories on the Continent. Norwegian and Dutch pipeline imports remained firm, and there has been minimal requirements for mid-range storage withdrawals, except to offset brief unplanned maintenance at the Bacton terminal. Rough storage withdrawals remain on track to return in the next few weeks, which will add a further supply source for the rest of the winter.
Below seasonal normal temperatures are forecast for early next week, which could generate some system tightness, but conditions are expected to turn milder heading into December, helping to ease the stress on domestic heating systems.
While annual power prices have been largely flat across the week, improved short-term supply prospects have triggered sharp losses for balance of winter contracts. The December ’16 contract fell 12% on Monday alone, responding to signs of improved nuclear plant availability in France. The healthier supply-demand fundamentals across the Continent, aided by above seasonal normal temperatures this week, triggered sharp price declines in France and Germany. This downward move was reflected in weaker UK power prices for next month.
Day-ahead power prices remain susceptible to price spikes, particularly on days of low wind generation. Improved prospects in France should cut the need for exports from the UK but tight supply margins are still expected to remain a problem for the remainder of this winter and again in 2017/18.