Forward gas contracts continued to show minimal price action, trading sideways within the same range they have done for most of the last three months. Following a widespread commodity rally seen over the last 12 months, contracts across the gas market are significantly higher year-on-year, but have moved little since the end of May.
The Winter 18 contract remains at 64p/th, holding between 61p and 66p/th for over two months. Market focus has now switched to speculation over demand levels for the winter season and how the UK will adapt to increased consumption, amid concerns over supply flexibility. The UK has very little storage reserves and will be reliant on imports from Europe. Stocks on the Continent are still down year-on-year, despite record injections.
LNG deliveries are 40% lower so far this year, compared to 2017. UK LNG prices are a third lower than the Asian market, so strong increases will be needed in order to attract supply this winter.
Day-ahead power prices moved higher last week, supported by a drop in wind generation and higher gas prices. CCGT plant continue to dominate the fuel mix, providing over half of the UK’s power, and maintenance work in the last week pushed up prompt gas prices.
Overall electricity demand remains low, with peak consumption bottoming out around 33.5GW in recent weeks, around historical lows. Forward power prices echoed the stability seen across the fuel mix in the last two months, trading sideways in a narrow range since peaking at the end of May. The high use of gas in the fuel mix has meant close correlation between the gas and power prices. Strong gains in the coal and carbon markets over the last year have significantly increased the cost of generation. While coal prices edged off recent peaks, carbon prices continue to climb, hitting new seven-year highs at close to €18/tCO2e. Power contracts continue to hold significant year-on-year premiums, but have seen little net movement in the last two months.