Small Business Energy Market Update
Wednesday 23 May 2018
What has happened to Gas prices this week?
UK Gas prices are continuing to climb off the back of strength in other energy commodities. Gains in oil, carbon and coal has lifted the NBP again this week. The prompt has also been supported by several unplanned maintenances.
This week oil reached over $80/bbl. This is off the back of growing global demand, OPEC cuts and geopolitical events e.g. US sanction on Iran. Coal is also up off the back of increased demand, particularly in Asia. Yesterday, carbon EUA futures traded above €16/tonne, a level that has not been reach in several years.
Unplanned outages have bolstered the prompt recently with Kollsnes, Kvitebjorn, Kristin and Nyhamna all having had capacity reduced. There is also maintenance planned for the IUK (interconnector) in June, which will affect UK system length.
Storage in the UK and on the Continent remains low in comparison to previous years off the back of the late winter cold snaps. Injection demand is likely to pick up over the summer, however, an additional risk premium is being priced into the W18 contract over fears the UK may not meet the required level of storage for the coming winter.
LNG imports to Europe are generally down year on year. This is because Asian gas markets are at a premium to Europe currently and therefore much of the world’s LNG is being sent East. In the near term, the UK is only expecting one cargo on the 10th June.
This week the UK has seen warmer weather, leading to a reduced gas demand. This is set to continue into next week with temperatures significantly above seasonal normal. There has also been a marked increase in renewable energy as solar remains strong and wind as picked up from a week of being below seasonal normal. This will reduce gas demand for power generation in the coming week.
What specifically affected prices in the past week?
Bullish Factors (Upward Pressure)
- Strength in commodities: oil, coal, carbon.
- Low UK and Conti storage levels.
- Outages and maintenance: Kristin and Kvitebjorn.
- Low wind.
- Lack of LNG.
Bearish Factors (Downward Pressure)
- Warmer weather.
- Low UK demand.
- High solar.