The onset of the winter season is providing uncertainty over consumption during the heating season and lack of supply flexibility to cope with higher demand, supporting prices. Winter 18 gas prices have hit 83p/th this morning, up over 12% 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.
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 is rising as winter approaches. 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 power generation.
Electricity contracts have mirrored the rest of the fuel mix, rising higher through the week to new highs, reflecting the recovery and increase in fuel costs. Carbon prices have rallied back to above €22t/CO2e, since they fell to €18 earlier in September, providing upwards momentum. In addition, coal prices have pushed higher, breaking new four-year highs at over $100/tonne, as coal output begins to squeeze expensive gas-fired generation out of the electricity mix. This has helped to underpin a rally in electricity contracts that has been ongoing for two years.
Electricity contracts across the curve are highly elevated at levels not seen since the Beast from the East cold snap. Renewable output was strong during the beginning of the week, due to strong winds from Storm Ali, but has since curtailed. This highlights the grid’s vulnerability to a cold temperature and low wind scenario during the winter season.
Power demand and consumption will continue to rise as the winter season approaches, accelerating further after the October clock change.