Weekly Market Update for 13 August 2018

Weekly Market Update for 13 August 2018

Gas contracts across the curve have broken to new highs after a prolonged period of consolidation, which had left the market rangebound since May. Concerns over supply flexibility as we approach the end of the summer season continue to underpin contracts.

UK LNG prices are a third lower than the Asian market, and Britain has struggled to compete for tankers this summer. Low imports will be more problematic during the higher demand winter period. A lack of storage capacity in the UK will leave the country dependent on foreign imports.

Brexit fears pushed Sterling to 2018 lows against the Euro and the Dollar, which would raise the cost of imports. European storage reserves are still down year-on-year despite a strong recovery from their April lows.

Brief maintenance last week was comfortably tackled by higher Norwegian imports and a drop in exports. Further maintenance is scheduled for the end of August and September.

The Winter 18 gas contract found resistance around 66p/th but has jumped to new highs at 67p/th this morning. With weekly losses in oil and coal, it is unclear whether the gas market will sustain its move higher.

With gas continuing to dominate the generation mix, there is a close correlation between gas and power contracts. Forward electricity contracts have moved higher to reach a new peak, breaking out of the sideways range held since the end of May. The move sustains an upward trend, which has seen power prices rise steadily since early 2016, as part of a widespread commodity rally. The rising cost of generation has driven the increase in electricity contracts, with coal and carbon prices, in particular, climbing strongly this year.

Carbon allowances approached €18/tCO2e last week, having more than doubled since the turn of the year. Supply-demand fundamentals were stable in the last week, providing little influence to the power market. The summer season has kept electricity demand at multi-year lows with an industrial shutdown and school holiday period further restricting consumption during August.

weekly update chart 13 Aug 18

Ross Moffat

Posted by on Monday, the 13. August at 9.18

Ross Moffat has been a part of the Market Intelligence team at Utilitywise since early 2014. His responsibilities include delivering Market Intelligence reports to clients and managing the Utility Insights Twitter account. Ross has a first class Honours degree in Business and Marketing from the University of Stirling.