Below seasonal-normal temperatures and low winds pushed gas demand to 360mcm, the highest level for the winter so far. However, the gas system coped comfortably with the higher demand as a very strong supply response dampened the impact of the cold spell.
Imports via BBL and the Interconnector – for the first time since May 2018 – boosted supply, while the influx of LNG seen last quarter has continued. LNG imports last month were its highest level in more than three years with 17 tankers reaching Britain. Five tankers are confirmed up to mid-January.
UK and European storage stocks were replenished over the holiday period, and are at record highs for the time of year, as low demand continues to negate the need for withdrawals. The risk of a storage overhang at the end of winter is weighing on forward gas prices. The Summer 19 contract has fallen 9% since Christmas Eve to its lowest level since August.
Temperatures have risen sharply today and demand has dropped over 75mcm. Above seasonal-normal temperatures are forecast for much of the next two weeks. The lack of another cold snap in January would further increase the likelihood of oversupply by the end of winter. The gas system has so far shown to manage isolated cold snaps with minimal fuss.
Electricity prices were marginally lower last week but have remained within their November range, and avoided the heavy losses recorded in the gas market over the Christmas period. Elevated carbon costs are underpinning electricity contracts, with the cost of allowances topping €25/tCO2e in early January, just below the 2018 highs seen in September.
Carbon costs increased by nearly €5 since mid-December as trading focus switched to Dec-19 allowances, with regulations due to start in January which would reduce the supply of allowances. Power demand was very low during the Christmas holiday period and while consumption has risen, it has failed to reach the winter highs seen in Q4 2018 around 48GW. Very low wind output last week, with peak generation of just 1GW increased the use of gas and coal. Gas burn averaged over 20GW on Thursday its highest level since the Beast from the East in February 2018. However, wind output is over 10GW today and temperatures have risen from last week’s cold snap.