Weekly Market Update for 15 January 2018

Weekly Market Update for 15 January 2018

Colder weather forecasts lifted the balance of winter gas prices in the last week. Below seasonal-normal temperatures had been expected in the UK and Europe from next week, however revised forecasts now show milder conditions and short-term contracts have reversed most of the gains seen last week.

Longer-dated gas contracts pushed higher following an earthquake in the Netherlands which prompted calls for reduced production at the Groningen gas field. Groningen is a core European supply zone but the threat of earthquakes from drilling has led to output falling in recent years. Production has fallen more than 60% since a high of 54bcm/year in 2013.

Dutch Petroleum Company, NAM, called for a further reduction after the strongest earthquake in six years hit the region. The energy regulator is to assess proposals to reduce output. Expectations of tighter gas supplies have raised prices in the UK, with longer-dated contracts most affected. Both winter gas contracts are at highs not seen for at least 2 and half years.

The UK remains dependent on foreign imports given its limited storage reserves and struggle to attract LNG deliveries. This makes issues of supply in Europe a major price driver for the British market.

Forward power prices followed the gas curve higher, with longer-dated contracts lifted by concerns over possible lower gas production at Groningen. Low wind output increased the share of gas and coal in the generation mix to more than 75% at times. Surplus margins narrowed early in the week as demand forecasts were initially expected to hit 50GW. However, Day-ahead power prices saw minimal uplift as a result. Higher wind output has since cut prompt prices back to around £52/MWh.

Strong winds are forecast to continue next week, peaking at close to 10GW and boosting surplus margins. Cold, windless days remain the biggest concern for electricity supplies during the winter season. However, very high renewable generation expected throughout this week will reduce the use of gas and coal in the generation mix.

Market Update 15.01.18

Ross Moffat

Posted by on Monday, the 15. January at 13.03

Ross Moffat has been a part of the Market Intelligence team at Utilitywise since early 2014. His responsibilities include delivering Market Intelligence reports to clients and managing the Utility Insights Twitter account. Ross has a first class Honours degree in Business and Marketing from the University of Stirling.