Weekly Market Update for 3 September 2018

Weekly Market Update for 3 September 2018

Gas contracts posted further gains in the last week, reaching new record highs before a modest pause. Prices continued to be driven by concerns regarding supply flexibility as the winter season looms.

Gains in the wider commodity mix have also supported gas contracts. Oil prices have risen by over 10% in the last two weeks, helping to push up longer-dated gas prices.

Winter 18 gas prices peaked last week at 74p/th, before a marginal drop. However, the contract remains around 7p/th more expensive since breaking previous resistance at 66p/th, which had marked the top of a three-month trading range.

The UK will be reliant on foreign imports during the heating season, meaning we will have to compete with Continental Europe for available supply. This issue would be exacerbated by a cold snap, such as that seen in March 2018, which drove Day-ahead gas prices to over 200p/th. The gas prompt jumped nearly 6% last week to six-month highs at 69p/th.

Heavy Norwegian maintenance continued to tighten production and medium-range storage withdrawals have been needed for balancing.

An unplanned issue in the UK this morning has left the system acutely undersupplied, with an increase in Within-Day prices likely needed to attract more supply or reduce Interconnector exports.

Electricity contracts remained closely tied to movements in the wider commodity mix. Contracts across the curve moved higher week-on-week, with the Day-ahead and front-month markets posting the strongest increases. However, having reached new record highs midweek, the upward rally paused before edging marginally lower.

A dip in coal prices after failing to break historical highs at $93/tonne provided some downside. There is still no indication of a change in the upward trend, which has been in place for more than two years. Higher gas prices amid ongoing maintenance, and strong gains in coal and carbon as part of a wider commodity rally has raised the cost of generation. Day-ahead power prices are at their highest level since the Beast from the East cold snap in March. Coal burn continued to average over 1GW/day in the last week, being utilised to cover dips in wind output.

Peak power demand reached 35GW last week is forecast to continue to rise as the summer season ends. This will accelerate after the UK clock change in October.

Market update chart 3 Sept

Ross Moffat

Posted by on Monday, the 3. September at 17.21

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.