Weekly Energy Market Review – 8 December 2016

Weekly Energy Market Review – 8 December 2016

Year-ahead gas and power prices have fallen steadily over the last week.

Year-ahead gas and power prices have fallen steadily over the last week. Gas contracts for delivery in the first quarter of 2017 posted the strongest declines – down more than 10% since Friday and 25% from their 2016 highs seen in early November. Increasingly bearish supply-demand fundamentals, particularly for the rest of the winter season, have been the driving force behind the downward move.

Gas and power demand has fallen sharply over the last week as temperatures across the UK rose more than five degrees above seasonal normal. Unseasonably mild conditions are expected to continue next week, likely to keep domestic heating consumption down.

The gas system was oversupplied at times with the UK benefiting from a strong price premium over the Continent. A stronger pound, following political uncertainty on the Continent, also encouraged imports from Europe, with the UK taking advantage of record European gas storage reserves. Norwegian imports to the UK remained near maximum levels despite unplanned maintenance issues at three processing plants. Centrica has been testing withdrawals from the Rough storage over the last week, ahead of a return to operation for the rest of the winter, providing an additional source to the UK supply mix.

Power prices have also fallen across the board in the last week, mirroring declines in Europe as supply fundamentals continue to improve. French nuclear availability has now returned to levels from 2015, reducing system tightness on the Continent and freeing up supply for imports to the UK. However, supply to Britain is currently limited by a 50% capacity reduction on the IFA interconnector after cables linking the regions were severed. Maintenance work is to continue until the end of February 2017.

A lingering cold snap pushed peak demand to record highs for the winter on Monday at over 51GW. However, demand has since fallen 10% on the back of mild weather conditions and strong wind generation. Wind supply briefly hit record highs at 10GW on Wednesday and output is expected to remain above 5GW for the rest of the week.

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Ross Moffat

Posted by on Thursday, the 8. December at 11.44

Ross Moffat has been a part of the Market Intelligence team at Utilitywise since early 2014. His responsibilities include delivering Market Intelligence reports to clients and managing the Utility Insights Twitter account. Ross has a first class Honours degree in Business and Marketing from the University of Stirling.