A prolonged spell of above seasonal-normal temperatures in the UK and Europe has been ongoing for much of January. Lower than expected heating demand has left the gas system well supplied. Excess gas in Europe has been sent to the UK at much higher levels than this time last year. Strong imports from Belgium, Netherlands and Norway has helped to offset the low levels of LNG availability and rebuild medium-range storage reserves. Gas stocks have risen 60% in the last four weeks having dropped sharply during the December cold snap. With more than 11TWh of gas in store, sites are over 80% full. Very strong wind output in recent weeks – where supply hit a record peak at over 10GW – has also cut the use of gas for power generation, adding further downside to prices.
Forward power prices have also eased, finding direction from the losses in the gas market. Healthy supply-demand fundamentals weighed heavily on short-term contracts particularly Day-ahead prices as wind output hit record highs of over 10GW. The electricity prompt dropped to three-month lows at £47/MWh. Above seasonal-normal temperatures and very strong winds, which lifted embedded generation levels, cut peak power demand to lows of 45GW. This was a fall of over 5GW from this time last year.
While losses have been seen across the curve, the decline is more gradual than that seen in the gas market. A substantial rise in carbon costs this month and continued strength in the coal market have stopped longer-dated contracts moving lower.
Annual coal prices remain at multi-year highs reached at the turn of the year, while carbon costs for 2018 spiked to five-year highs, rising over 20% in the last two weeks.