Supply-demand fundamentals were stable despite higher demand due to the return of the Interconnector from maintenance. Exports to Europe reached maximum levels around 60mcm/day. However, the gas system was unaffected as Norwegian imports rose strongly in line with the exports. The UK is acting as a transit nation for Norwegian gas, passing supply on to Europe. However, concerns over supply flexibility for the winter, alongside rising oil and coal prices have pushed longer-dated gas contracts close to their May peak.
Groningen production is set to be lower than expected this year because of tighter production caps. In previous years, Groningen production ramped up during the winter months to react to the higher demand. However, in recent years output at the site has been flat, reducing flexibility in Europe. LNG imports are also markedly lower, down 33% so far in 2018 compared to last year. Supply disruptions pushed Brent crude towards three-year highs around $79/bbl last week. Coal prices also hit new multi-year highs at over $91/tonne, adding further support to the energy curve.
The electricity market also moved higher in the last week, although the gains were more gradual. Stronger gas and coal prices raised the cost of generation and kept electricity contracts highly elevated, consolidating the strong gains seen between February and May.
Annual electricity contracts are significantly higher year-on-year following a strong uptrend seen over the last 12 months. Gains of around 2% in the last week pushed Calendar Year contracts close to the multi-year highs reached at the end of May.
Carbon costs are also consolidating at over €15/tCO2e, having doubled since the start of 2018, further increasing the cost of fossil fuel generation. In the short-term very low wind output last week pushed up Day-ahead power prices. With wind supply under 300MW for several days, this significantly increased the share of gas in the fuel mix. However, electricity demand overall remains at over six-year lows. Very high temperatures, long summer evenings and record-breaking solar generation have all weighed heavily on power consumption, with demand peaking at just 32GW in the last week, down around 7GW from the same time five years ago.