Gas prices climbed sharply across the board last week, extending a break above their previous October highs to reach levels last seen more than two years ago. Colder temperatures lifted gas demand, with consumption for today reaching 300mcm for the first time since March. Total gas demand has almost doubled in the last two months, with domestic LDZ consumption making up more than two-thirds of demand. Day-ahead gas prices jumped to new nine-month highs at over 53p/th to help the UK compete for additional supply. Increased Norwegian and Dutch imports and stronger UKCS production, added to flexible use of storage have helped the gas system cope with the higher demand. However, there remain concerns for the rest of winter. Just one November LNG tanker has been booked and Asian LNG prices are currently 30% higher, attracting more cargoes. Rough storage withdrawals have depleted half of the cushion gas reserves, with stocks unlikely to last beyond January. Oil prices have also jumped to two-year highs, providing support to longer-dated gas contracts. As the UK continues to rely on pipeline imports to meet demand, there is the potential for further price rises.
Forward power prices have extended the previous week’s gains, pushing to more than two year highs, echoing a rally seen across the gas, oil, coal and carbon markets. Having broken previous resistance levels prices have now reached highs last seen in Summer 2015. Coal prices climbed to new multi-year highs and carbon prices were testing €8/tCO2e in the last week. This has raised the cost of generation, supporting power contracts. The share of gas and coal burn in the fuel mix has risen in line with higher demand, as well as reduced nuclear output. Planned outages at both Sizewell B reactors are set to cut nuclear availability for the rest of November. However, strong wind output in the last week has helped to cap Day-ahead power prices. Prompt prices remained below £50/MWh as healthy margins were boosted by up to 9GW of wind in the last week. However, a drop in wind output this week and cold temperatures expected to push power demand to 50GW have pushed power prices for Tuesday to £53/MWh.