Weekly Energy Market Review – 16 February 2017

Weekly Energy Market Review – 16 February 2017

Year-ahead gas and power prices have continued to ease, pulling contracts back to their lows for the year.

Year-ahead gas and power prices have continued to ease, pulling contracts back to their lows for the year. The drop has followed a further improvement in supply and demand prospects, mostly for gas. The power system is also healthy, with demand easing as the end of winter draws closer, but the main price drivers for both commodities have been focused on the gas market. As such, there are growing concerns over storage, which are potentially mitigating further losses.

UK temperatures are rising and conditions across Europe are mild. This is reducing energy demand and forecasts are for continued above-average temperatures to the end of winter. While demand has been falling, there has been an increased incidence of storage withdrawals, which has led to the UK gas system being oversupplied at points in the last week. With no significant supply problems, the enhanced withdrawals are more indicative of the commercially driven seasonal drawdown in stocks.

Capacity holders are selling gas on to the system to secure profit and make space for injections in the summer, when prices are expected to be cheaper. However, the scale of injections and subsequent volume available in Rough for next winter have been thrown into serious doubt. Rough had already had infrastructure problems last year, leaving it significantly below full capacity over this winter.

Now, further testing is delaying any injections until the start of July at the earliest. The prospect of another winter where the UK has reduced storage supply flexibility has helped support contracts for delivery in that period.

In the near-term, however, supply prospects remain healthy for gas. As well as the strong storage withdrawals, the UK’s LNG delivery schedule has improved. Three cargoes have now been booked for the month, surpassing both December and January levels. Falling Asian gas prices have reduced the incentive for LNG cargoes to go east, and there is the increased likelihood of the UK and Europe securing additional LNG supplies going forward.

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Ross Moffat

Posted by on Thursday, the 16. February at 15.57

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.