Gas and power prices have declined in the last week, taking annual contracts to four-month lows. A healthy supply-demand balance for both commodities has returned the market to levels last seen in early December. The expectation is for energy demand levels to continue to fall into the summer, pressuring prices. However, this could be offset by gas demand for storage injections across Europe.
Above-average temperatures across Europe have helped pull down gas demand. Power demand is also expected to step-down further in the near-term with this weekend’s clock change. Weather conditions are expected to remain mild for the next few weeks at least, helping to cut overall energy demand. Meanwhile, UK gas supplies have been healthy. LNG sendout has been stronger than last month, following an increase in deliveries. Eight tankers have been confirmed for March, the most since September 2016. However, none have so-far been booked for April. At the same time, Norwegian imports have held steady and storage sendout has continued. This has offset the impact of some outages in the North Sea, but in general it has contributed to the gas system opening oversupplied throughout last week. Storage capacity holders in the UK and across Europe are generally trying to draw down stocks at this time of the year, in order to secure profits. It also leaves storage space open for injections when wholesale prices are generally weaker. However, with European stocks down sharply this winter from record high levels seen before Christmas, the scale of gas demand this summer could be higher than in previous years. In the short-term though, power demand at least should drop with the clock change. Last year, peak demand fell from 46GW to 42GW around this point. Lower power demand should also cut the use of fossil fuels, which have already been mitigated by the mild weather conditions and strong wind generation.