Gains in the last few days have pulled annual gas and power prices to a marginally higher position week-on-week. The earlier losses had pulled both contracts to fresh four-month lows. Summer contracts had fallen to six-month lows, but are now back above their December lows. The recent gains have developed despite the healthy supply-demand balance for gas and power coming out of the winter. The gains over the last few days have been linked to a short period of maintenance on North Sea assets as well as a reaction to the earlier losses. While the expectation is currently that the energy supply systems will remain healthy going into the summer, there is uncertainty over the extent gas demand will be affected by storage injections across Europe.
Above-seasonal normal temperatures for the UK and the Continent has kept the call on gas for heating weak. The clock-change last weekend has also hastened the decline in electricity demand. Peak demand for the end of March is expected to be around 35GW compared to 41GW the week before. Indeed, the weekend saw the lowest peak demand since last September. The longer, lighter, and warmer days are generally cutting the need for energy. Meanwhile, weather conditions are helping to support renewable generation, further reducing the dependence on fossil fuels for electricity. On the gas supply side, Norwegian imports have largely been strong. Meanwhile, LNG sendout has also been steady, helped by nine cargoes being confirmed for March, providing the strongest supplies since September 2016. Three cargoes have already been confirmed for April. If LNG availability remains strong into the summer, any resulting excess supply is likely to end up in UK storage, or exported for European storage. Both the UK and European reserves are currently weaker year-on-year and will need significant injections to return to the highs seen last October. For the UK though, there is continuing uncertainty over the extent to which gas will be injected into Rough, the UK’s largest storage site, with maintenance blocking any flows back into the site before at least July. While this will mean less gas demand over the summer, it will also leave the UK with less gas flexibility for next winter.