The demand impact will be limited by the Easter Bank Holiday weekend. The need for substantial storage injections across Europe remains price supportive, particularly to the Summer 2018 gas contract. European gas storage operators need to add 65bcm of gas over the summer in order to start Winter 18/19 with the same reserves as this year. This equates to more than 350mcm of injections every day for six months – which is more demand than the UK typically uses in total on a cold winter day. The exceptional rise in the carbon price – doubling since the start of the year – will also facilitate a switch from coal to gas-fired generation, adding to gas demand in the coming months.
LNG deliveries are set to remain into April with two tankers booked for next week. However, if the UK and Europe are unable to sufficiently fill reserves for next winter there will be an additional risk premium added to the contracts.
Forward electricity contracts were little changed in the last week. The recent surge in carbon prices has raised the cost for fossil fuel generation, particularly coal. The cost of allowances for 2018 is at more than six-year highs, close to €14/tCO2e, double that seen at the start of the year.
Summer 2018 power prices have moved higher in line with the gas market, on expectations of additional demand during the summer season. This comes from the need for major storage injections and more gas for power generation after the rise in coal costs.
The start of British Summer Time has shifted peak power demand to later in the evening as the days stay lighter for longer. Peak consumption dropped to 41GW, having been as high as 49GW the previous week. Day-ahead power prices are fluctuating around £50/MWh. The drop in demand is price depressive but forecasts of lower wind output are adding support, particularly as the cost of fossil fuel generation has risen.