Weekly Market Update for 17 September 2018

Weekly Market Update for 17 September 2018

Gas contracts have been highly volatile with prices hitting record highs before falling for three consecutive days; a move mirrored in the carbon market.

Following the heavy losses, gas contracts have risen today, with balance of winter contracts rising as much as 4%, recovering some of the previous week’s decline to return to levels seen earlier this month. At present, the upward trend remains in place, after the heavy downward move was halted. It is unclear at this moment whether a further correction will occur or the market will enter a period of consolidation.

Supply flexibility concerns remain an issue, keeping short-term contracts elevated; with the winter season now just two weeks away. The lack of storage capacity in Britain will leave the country reliant on imports, with competition from the Continent likely to push prices higher, particularly during a cold snap. Demand will begin to rise as winter approaches; however, early long-range weather forecasts suggest a cold snap is more likely in Q1 2019.

Current supply-demand fundamentals have been healthy, aided by a reduction in Norwegian maintenance and very strong wind output, which has cut the use of gas for generation.

Electricity mirrored the volatility seen in gas and carbon. A strong downward move saw prices drop as much as 6% from record highs. The cost of carbon allowances tumbled from €26 to €18 in three days, providing a strong downward pressure. Electricity prices subsequently stabilised and have rebounded strongly in trading today, recovering much of the decline seen last week.

Coal prices have pushed higher, hitting new four-year highs at $96/tonne today while carbon costs have recovered to over €20. Electricity contracts across the curve remain highly elevated, despite dropping back from record highs. With the winter season just two weeks away demand is expected to rise sharply, particularly after the clock change in October.

High winds cut the use of gas last week, but coal burn remained strong, averaging around 2GW, with the share of CCGT being squeezed by the renewable availability. The grid remains most vulnerable to a cold temperature and low wind scenario during the winter season. The last severe cold snap brought nearly 10GW of wind, which relieved pressure on fossil fuels, which may not be the case this winter.

Ross Moffat

Posted by on Monday, the 17. September at 15.54

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.