With the winter season now just three weeks away, uncertainty over consumption during the heating season and supply flexibility to cope with higher demand are supporting prices. Winter 18 gas prices have hit 80p/th this morning, up over 8% already this month.
Widespread bullish momentum across the energy mix is also pushing the market higher, with strong weekly gains seen across power, coal and carbon. Short-term supplies are being restricted by heavy Norwegian maintenance, although the unplanned UKCS issues have now been resolved. Medium-range storage stocks are down 14% of capacity in the last two weeks, covering the shortfall in Norwegian imports. The UK will be reliant on foreign imports during winter, with the country lacking a long-range storage facility. Extra competition for supply from Continental Europe is likely to push prices higher, particularly if demand is accelerated by a cold snap.
LNG imports remain weak as Britain struggles to compete with Asia for available deliveries. Further price rises will be needed during the winter to entice more tankers from the Middle East to the UK.
Electricity contracts followed the rest of the fuel mix higher last week. Prices climbed to new highs reflecting the continued increase in fuel costs.
An exceptional rally in carbon prices have pushed carbon costs up 25% in the last three days to over €25 per tonne of carbon emitted. Carbon costs have trebled since the start of 2018 and, combined with increased coal prices breaking to new four-year highs at over $94/tonne, have significantly raised the cost of generation. This has underpinned a rally in electricity contracts that has been ongoing for over two years.
Low wind output in the last week also pushed Day-ahead power prices to new highs at close to £70/MWh, a level not seen since the Beast from the East cold snap. Weak renewable output and higher demand as industry and schools return from the summer holiday period, increased the use of more expensive fossil fuels in the generation mix.
Peak power demand is at more than four months and consumption will continue to rise as the winter season approaches, accelerating further after the October clock change.