Below seasonal-normal temperatures have increased heating consumption today, but the UK gas system has coped. The colder weather is forecast to continue for at least the next two weeks. Heavy withdrawals from medium-range storage have been required to balance the system as total gas demand is over 370mcm. After a milder than expected January, the UK is in a strong position to cope with the higher demand, particularly compared to the supply problems seen in December.
An unseasonably mild start to 2018 allowed storage reserves to be built up to record levels for this time of year. Interconnector imports climbed to near maximum levels at 60mcm and imports from Norway and the Netherlands via BBL have also remained strong. While it is unclear whether the cold snap will linger into the second half of February, longer-dated gas contracts were largely unaffected by the short-term drop in temperatures. Annual contracts remain around four-month lows having fallen sharply through January.
Forward power prices were closely correlated to movement in the gas market last week. Expectations of higher demand as temperatures dropped below seasonal-normal provided support to the Day-ahead and front-month contracts. However, the power curve was largely unaffected with prices holding at previous lows after easing through most of January. Below seasonal-normal temperatures have pushed peak demand to around 49GW, while wind output has fallen below 2GW. This supported a recovery in Day-ahead power prices to £51/MWh, having fallen to lows of £46/MWh during the mild, windy conditions of January.
The short-term cold snap has had little impact on the power curve, with longer-dated electricity contracts unchanged or marginally lower across the week. Coal and carbon costs had slowed the decline in electricity, compared to the gas market, but both commodities have since fallen from their January highs, which could add further downside to the electricity curve.