Since the seasonal switch and the expiry of the Winter 18 contract, the gas curve has begun to flatten. Contracts out to 2021 rose sharply, while short-term balance of winter prices were unchanged. The Winter 18 gas contract climbed sharply during August and September amid mounting concerns over supply flexibility to meet demand, which extended its premium over the rest of the curve. Longer-dated gas contracts also drew some support from higher oil prices, as tight supplies pushed Brent prices to four-year highs at $85/bbl.
Gas fundamentals were largely healthy last week. Norwegian imports increased as fields switched to higher production profiles for winter. Interconnector exports were at zero, freeing some supply for medium-range storage injections.
Temperatures have been above seasonal-normal so far in October, with mild conditions forecast for the next week. This has slowed the seasonal growth in heating demand. However, it is how the gas system copes with a high-demand situation this winter which will shape price movement during the season.
Electricity contracts followed a similar pattern to the gas market. Balance of winter prices saw little change with the market adjusting to the new season. However, seasonal contracts from Summer 19 onwards climbed strongly, with gains of up to 6% across the week.
Coal prices remain elevated, with winter prices over $100/tonne, providing support to the power market.
Short-term electricity prices had risen in previous months, but price movement last week reduced some of the premium for monthly contracts. Day-ahead prices held below their September peak as strong wind output for most of the week helped to reduce the use of gas and coal in the fuel mix.
Stormy weather conditions forecast this week could see wind generation return to highs of 10GW. Above average temperatures are set to continue this week, although darker evenings have a bigger impact on power demand than temperature.
Consumption will climb sharply through October, particularly when the clocks change at the end of the month. How the grid copes with a cold snap will have a major impact on power prices this winter, particularly if wind output drops at the same time.