Temperatures this week have been far milder, helping to reduce domestic heating demand from the recent winter highs.
However, the current mild spell is expected to be short-lived with temperatures falling at the weekend, and seasonal normal or below conditions expected until mid-February. Concerns over possible tight short-term fundamentals have supported strong gains in the Day-ahead and balance of winter contracts. A rush to close out positions before February also supported a short-term rally. The front-month March gas contract reaching two-year highs. However, price movement beyond Summer 17 remains muted, with contracts continuing to hold in the middle of the January range.
LNG availability remains weak. Just one tanker arrived in January and the UK booked its first delivery for February yesterday. High Asian LNG prices over the winter season have drawn cargoes away from Europe. Deliveries to the UK since September are down 75% year-on-year. Problems at the Rough storage facility continue to cause concern.
Maintenance has been extended for a second time, while there is uncertainty over injection capabilities over the summer. Mid-range storage withdrawals have accelerated in the last week, falling from 90% capacity to under 60%. However, the sites are expected to replenish over the next few days curing the current milder spell.
Power prices have been closely correlated to the gas market in recent weeks, with shortterm contracts pushing higher and the rest of the curve remaining rangebound. Supply margins are currently at very high levels. Milder temperatures have helped to cut peak demand by 3GW from the previous week.
Strong wind generation, forecast to reach highs of 7GW today, is supporting healthy supply margins. However, with high levels of gas and coal-fired generation required this winter, there remain concerns over supply flexibility for next year, although the ongoing Capacity Market auction this week is hoping to secure sufficient generation for 2017/18.