After the mild conditions in the previous week, temperatures have been falling and forecasts have been revised to indicate even colder conditions from now into December than previously expected. There have not been any significant supply issues so far. However, with storage reserves severely muted due to the problems at Rough, and suggestions of weak LNG imports, this has reduced the UK’s flexibility should there be any supply or demand shocks. Medium-range storage stocks are still available, but at maximum withdrawal rate, this only provides for close to two weeks of supply. Mitigating this to some degree is the strength of European storage levels. Over the summer, Europe had been importing gas through the UK, and the UK in turn may purchase this gas over the winter, but potentially at a higher cost than if more storage or LNG had been available.
Power prices have remained elevated, supported by both stronger gas and coal prices, as well as carbon contracts holding above €7. As well as the costs of fossil-fuel generation pulling power prices higher, expectations of higher demand were also price supportive. Recent forecasts suggest conditions are expected to turn even colder next week and into December. National Grid has also indicated that supply margins will tighten at the start of December as 1.5GW of gas-fired generation goes on maintenance while demand increases. The potential for supply tightness may be mitigated by strong wind output, which has increased in the last week and is expected to hold at elevated levels above 5GW through to the start of December. However, should this not emerge, then the reliance on coal-fired generation could increase, supporting prices.