The closure of the main UK oil and gas pipeline reduced North Sea gas production by 40%. The Forties system is set to be offline for at least two weeks. The supply squeeze was aided by a power failure at Norway’s largest gas field, Troll, and maintenance at Kollsnes. Imports from Norway via Langeled fell by 66% as a result. An explosion at a major gas hub in Austria also disrupted supplies on the Continent as Russian flows into Europe were briefly curtailed.
The supply problems came at a time when the UK was experiencing its highest level of gas demand for three years, as freezing temperatures raised heating consumption. The UK was heavily dependent on European imports from IUK and BBL which both rose to maximum levels. Medium-range storage sendout also hit a record high to offset the supply problems. Reserves dropped 30% across the week to record lows for the time of year. The price movement was largely limited to balance of winter contracts and prices have since reversed all of those gains as Norwegian supply returned to the grid. Above average temperatures are also forecast for this week which has curbed demand levels.
Winter power contracts mirrored movements in the gas market as a supply squeeze and high demand pushed up short-term prices. A cold snap across Britain raised heating consumption and the freezing, snowy weather conditions lifted peak power demand to new season highs at close to 50GW. Day-ahead power prices jumped above £60/MWh to new 12-month highs as strong demand coincided with low wind output and ongoing nuclear plant maintenance. Gas and coal-fired generation was providing over 75% of UK electricity, with the country’s coal plants running close to maximum output. Soaring gas prices raised the cost of generation, while coal prices also climbed in the last week.
However, overall margins remained relatively robust and prompt prices subsequently eased as demand fell and wind output rose by the end of the week. Day-ahead prices were nowhere close to the highs from September 2016 when concerns over French nuclear availability pushed the prompt to £150/MWh. Longer-dated power contracts have dropped back from their late November peak, but remains above the range seen through September and October.