Support is being found at the lows from early June. The Winter 18 contract has held between 61p and 66p/th since the end of May, holding flat at 64p/th throughout the last week. The system was balanced throughout last week.
Gas demand was largely unaffected by exceptionally high temperatures in the UK. Strong exports to Europe continued as storage stocks were built up at record pace, but this was offset by strong Norwegian imports. UKCS outages and maintenance scheduled for early August have provided some support, but the market focus remains on how the UK will adapt to the winter season amid concerns over supply flexibility. The UK has minimal storage capacity since the closure of Rough, and will be reliant on imports from Europe.
LNG deliveries to the UK are down over a third so far this year and around two thirds compared to 2016. A further reduction in output from the Groningen gas field will increase concerns over flexibility, and the system’s ability to cope with high-demand situations.
Power prices were largely unchanged last week, echoing the lack of net movement in the gas market. The high use of gas in the fuel mix has meant close correlation between the gas and power prices, particularly during recent spells of low wind over the summer months. Electricity demand remains around historical lows, further depressed by strong solar generation seen in recent months, which has increased embedded supply and lowered demand on the transmission network. Despite little price movement in recent months, electricity contracts across the curve remain elevated, significantly higher year-on-year and close to historical peaks. The increases over the last 12 months were linked to a strong uptrend seen across energy commodities. Strong gains in gas, coal and carbon raised the cost of generation, supporting electricity prices.