Weekly Market Update for 20 August 2018

Weekly Market Update for 20 August 2018

Gas contracts across the curve rose to new highs, continuing an upward trend that had been in place for more than 2 years.

The market has broken previous resistance, reaching new multi-year peaks. The Winter 18 gas contract broke above 66p/th, the highs of a trading range held since May, rising a further 3p last week.

Growing concerns over the winter season and issues of supply flexibility have led to the front-season gas contract climbing more than 10% since the start of August. The move higher is echoed across the wider commodity mix, with trading last week also seeing gains for electricity, coal, and carbon contracts.

Prompt gas prices rose to five-month highs at 63p/th ahead of the start of a heavy schedule of North Sea maintenance set to run until the end of September. The Troll gas field and Kollsnes processing plant are disrupted for the next two weeks, while industrial action today has cut supply into the UK. A switch to storage withdrawals from strong injections has helped balance the system, alongside a drop in Interconnector exports. The extent of demand for the winter season remains uncertain with concerns over the flexibility of UK gas supplies continuing to underpin prices.

Electricity contracts maintained a close correlation to movements in the gas market, with CCGT continuing to dominate the generation mix. Forward contracts extended a long-running upward trend to reach new highs, having broken out of a trading range earlier this month.

Further gains in coal and carbon, with the latter approaching €19/tCO2e; have helped to drive increases in electricity contracts by raising the cost of generation. Weekly gains were strongest for short-term contract. October prices rose 4% in anticipation of higher demand for the winter season.

The summer season has kept electricity demand at multi-year lows, with August consumption further depressed by school holidays and industrial closures. However, very low wind output at the start of this week, with supply dropping to 100MW, has led to a spike in prompt power prices to £67/MWh. Echoing gains for the equivalent gas contract, prompt power prices are now at highs not seen since the ‘Beast from the East’ in March.

Weekly market update 200818

Ross Moffat

Posted by on Monday, the 20. August at 14.57

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.