Above average temperatures slowed the growth in heating demand. Combined with a lack of Interconnector exports, overall gas demand was no different to summer levels.
There were higher Norwegian imports as fields switched to winter production levels, and improved LNG sendout – following the booking of five tankers – increased supply. This encouraged strong injections into medium-range storage. Improved storage stocks had mitigated some risk over supply flexibility and prices fell steadily across much of the week. Around 1.5 billion cubic metres of gas has been added to European storage this month. After dipping to two-month lows, balance of winter contracts rebounded strongly on Friday as forecasts showed a return to seasonal-normal temperatures this week. Very strong wind output that had cut gas for power generation was also expected to end.
Heating demand is set to rise this week, lifting prices. However, it remains to be seen how the gas system copes with a high demand situation this winter. The supply response to this will shape price movement during the season.
Electricity contracts followed the gas market, although the losses were more gradual. A combination of very high winds and unseasonably mild temperatures reduced demand levels. Contracts from Summer 19 onwards saw the heaviest losses down 5-6% across the week.
A drop in coal prices also contributed to lower electricity contracts, although both commodities remain elevated, following substantial gains over the summer season. Wind output surged to over 11GW on Friday, as Storm Callum hit the UK, with renewables providing more than a third of the country’s electricity. However, a sharp drop in wind output this week has led to a rise in power demand.
Reduced on-site embedded generation, combined with less mild temperatures, have pushed peak electricity consumption to 42GW this week. This is the highest demand since March and nearly 5GW above last week’s peak. Electricity demand will continue to rise through the winter as evenings darken earlier, accelerating higher when the clocks change in two weeks. How the grid copes with supply margins, as demand increases, particularly during days of low wind output, will shape price movement this winter.