Year-ahead gas and power prices continue to slide, with healthy supply-demand fundamentals providing most of the pressure to contracts. The downward trend seen through most of February has been largely driven by rising temperatures, sharply cutting domestic heating demand.
Lighter evenings and stronger wind generation have also weakened power demand. Peak power consumption this week dropped to its lowest weekday level since Christmas, with a 20% drop in peak demand since the end of January, mirroring a similar decline in Day-ahead prices. Stormy weather conditions helped to boost wind supplies which peaked at around 7GW. The recent Capacity Market auction has secured a high level of capacity for next winter, easing long-term supply concerns. A healthy supply outlook has helped pull annual power prices down to new lows for the year.
The gas system has been oversupplied throughout this week, as above seasonal-normal temperatures helped to reduce demand. Day-ahead gas prices have fallen to new lows for 2017. This has encouraged the UK to export gas over the Interconnector at times this week. Mid-range storage sites have also taken the opportunity to resume injections and rebuild gas inventories. LNG sendout so far this month has averaged just 5mcm, down nearly 90% from this time last year. However, supplies are likely to rise next month, with four LNG tankers currently expected for March, more than doubling the 2017 total.
With near-term supply prospects healthy, gas contracts for delivery out to Summer ’17 have fallen to new lows for the year. Concerns remain over the long-term viability of the Rough storage site, with testing ongoing until June. It remains uncertain how much stored gas will be available at the site for next winter. This continues to provide some support to longer-dated contracts, which are holding at the bottom of the range they have traded in throughout the year.