Gas contracts hit three-year highs earlier in the week. However, the strong climb may have attracted some profit-taking with contracts easing off those highs, returning to levels seen at the end of April. Contracts remain elevated and the gas system still requires extensive storage injections to rebuild reserves for next winter. A risk premium related to low storage stocks continues to support Winter 18 and 19 contracts.
Maintenance work disrupted production this week and the gas system was frequently tight or undersupplied. Temperatures were below seasonal-normal, raising heating demand to highs of 260mcm, although conditions have warmed today and the outlook for the next two weeks is mild. Two bouts of Norwegian field maintenance began this week, running until the last week of May, while an outage at St Fergus has halted flows via the Vesterled pipeline until 21 May. Unplanned UKCS production at Laggan Tormore also cut supplies this week.
Forward power prices are little changed across the week after early gains were largely reversed, leaving contracts at levels seen in the last week of April. The electricity curve has mirrored movements seen across the wider energy commodities. Bullish momentum pushed annual prices up 15% in the last two months, supported by the rising cost of generation as coal and carbon prices also rallied. These strong April gains may have encouraged profit-taking, with power contracts following the gas, oil, coal and carbon markets lower in recent days. Day-ahead power prices remain influenced by wind output but largely held between £50-52/MWh. Colder and darker weather conditions supported demand this week and coal plant was required for balancing, following the record coal-free generation seen last month. New long-term maintenance at the Hunterston B nuclear plant provided support to short-term contracts. Cracks found at the site could reduce its output by 40% for as much as six months. Lower nuclear production could increase the need for gas-fired generation, particularly on days of limited renewable availability.