Above seasonal-normal temperatures are forecast from next week in the UK, while Continental Europe has been experiencing unseasonably mild weather since the turn of the year. This has reduced heating demand, with excess gas being sent to the UK via the Interconnector.
Strong imports from Belgium, the Netherlands and Norway left the UK gas system oversupplied every day last week. Medium-range storage reserves were built up to 12.5TWh, over 90% of capacity. Record high wind output in the last week also helped reduce gas for power demand. Speculation surrounding reduced production at Groningen had lifted annual gas prices but these gains have now been unwound as expectations build of a healthy supply outlook for the rest of winter. This could lead to a storage overhang heading into the summer. A drop in crude oil prices also added downside to the gas curve, with Brent crude falling to $68/bbl, after briefly testing highs of $70/bbl.
Forward power prices followed the gas market lower in the last week, pressured by healthy supply-demand fundamentals. Wind output hit a record peak at over 10GW, and provided around a quarter of UK electricity at times last week. The high wind output cut the cost of generation by reducing demand for gas and coal burn. Day-ahead power prices dropped below £50/MWh for the first time since November. Peak power demand was also supressed at around 47GW as higher renewable embedded generation reduced demand on the transmission network. Forecasts for above average temperatures in the coming weeks also added downside to short-term prices. February and March power contracts dropped around 5% last week. Annual power prices also dropped, but losses were more gradual on the far curve. Calendar Year contracts have yet to break below their December lows, unlike the gas market.
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