Over 60bcm of gas is needed to rebuild storage reserves across Europe for next winter. Two severe cold snaps in March have left stocks at more than five year lows. Heating demand will continue to drop, particularly with temperatures rising sharply this week. However, the reduced consumption will be taken up with additional storage injections.
Gas for power demand could also remain high with countries switching from coal to gas burn to reflect the substantial rise in carbon costs this year. Healthy LNG imports this month have helped to boost supply, with six tankers arriving so far. However, it is uncertain if these deliveries will continue.
Planned and unplanned Norwegian maintenance left the gas system tight on occasions last week, which added further support to the prompt market. The UK began exports to Europe over the Interconnector, acting as a transit nation for Norwegian supply.
Increased crude oil prices, which hit highs from 2014, also provided support to longer-dated gas contracts.
Electricity contracts moved higher last week, following an upward move in wider commodities which also saw clear weekly gains for gas, coal, oil and carbon. Longer-dated power contracts continue to be supported by rising coal and carbon costs, with the price of carbon allowances ending the week at new six-year highs of over $14/tCO2e. Annual electricity contracts extended gains to hit new highs for the year. The rally came despite further signs of falling demand as the summer season gets underway.
Day-ahead power prices peaked at £56/MWh last week but have dropped this week as consumption falls 10%. Peak power demand of just 36GW is forecast this week, the lowest level for mid-April in over six years. Bright weather conditions and temperatures more than five degrees above average are set to provide a clear boost to solar output.
Forecasts suggest a new all-time record is likely with output of 10GW possible. Higher embedded generation will help to cut transmission demand as homes and businesses generate their own power. The share of gas and coal in the fuel mix will also be squeezed by the healthy renewable output.