Healthy supply-demand fundamentals continued to drive prices lower, with weather forecasts showing this week’s cold spell has now failed to materialise. Aside from one cold, windless day, which saw gas for power generation hit a ten-month high, demand was low throughout the week. Strong winds are reducing electricity demand year-on-year and cutting the use of gas in the fuel mix. Above seasonal-normal temperatures are forecast until Christmas.
With little sign of a cold snap before the New Year, the likelihood of a storage overhang has increased. European storage stocks are still at record highs for this time of year, with the low demand reducing withdrawals. UK stocks are over 95% full, providing little space for more injections over the Christmas period. The influx of LNG has continued this month, with eleven tankers confirmed for December. Half of LNG deliveries in 2018 have arrived since October. The supply boost has reduced the need for European imports or storage withdrawals. While temperatures for Q1 2019 could be colder, the window of opportunity for a severe cold spell is narrowing. Summer 19 gas prices fell below their November lows, although contracts beyond this date found some support at those levels.
Electricity prices followed the gas market lower last week, driven downward by expectations of continued above average temperatures for December, keeping demand low. Day-ahead prices swung widely across a £15/MWh range, responding to volatility in wind generation. Wind output on Tuesday fell sharply to four-month lows, averaging under 1.5GW. This prompted a jump in gas-fired generation, averaging over 18.5GW, its highest level since early February.
The higher demand and low wind pushed Day-ahead power prices to £70/MWh. However, as temperatures climbed sharply later in the week and wind output returned to near record highs of 12GW, Day-ahead prices fell to lows of £56/MWh.
Balance of Winter power prices posted the heaviest losses last week, echoing the downward movement in the gas market, which saw January prices hit more than six-month lows. However, longer-dated electricity contracts remain above their November lows. A recovery in coal prices in the last week, alongside elevated carbon costs that remain around €20, are providing some support to the electricity curve, stopping prices from breaking below their early November lows.