Following from our last market update, the start of the year has been volatile. Beginning with a tumble, by the 10th of January, prices became firmer as the cold weather came over eastern Europe and headed westwards- causing fears for gas and power supplies. By the second week of January, levels were starting to come back under pressure; being dragged lower by the softening gas market.
The following information was provided by Marex Spectron in mid January 2017:
“Day-ahead UK power started the year with prices rising up to £54/MWh, amid several outages, before curving down to below £48/MWh as supplies improved amid extremely high wind power output (a record daily average of 9.8GW of wind power was registered on Tuesday 11th). But prices had ramped up above £60/MWh by mid-month, as wind levels and nuclear output dropped, while exports to France and Ireland, in the face of strong heating demand, also contributed to the market tightness.”
The weaker pound continues to affect prices; weak against the Euro and Dollar, it means that energy costs are increasing due to import costs amid firming expectations of a hard Brexit.
The coal prices from Europe have increased again; the month-ahead rising to $9/tonne to break above $86/tonne at one stage- due to concerns that February cold snaps could boost demand- and freeze up supply routes again.
The gas market, reflecting the energy market, started January with a lull; late 2016 rallies had exhausted themselves which meant that increased import volumes and physical supplies together with forecasts of warmer weather were all factors in this. Prices then increased; as stated, there was freezing weather in central and eastern Europe- resulting in shortages in many regions from predictions that the weather would spread to northwest Europe. Prices have since eased as it was reported that the UK had missed the worst of the weather. Marex Spectron gives us more price information concerning this, “In the price run-up, several long-term price highs were reached: Dayahead and Month-ahead hitting 25-month highs of over 55.5 p/th and 56 p/th respectively, and April ’17 Annual hitting a 20-month high of 49.5 p/th.”
Looking at the bigger picture; there was record UK wind power outputs during the second week of January which reduced the demand on gas. From Norway, there has been a strong gas flow for the past few weeks- putting aside a few outages as these have failed to impact the UK imports. At home, our gas production has always been largely trouble free. Despite this good news, there has been trouble with the Belgium- UK interconnector leading to there being a higher level of imports at the start of the month compared to mid January. If you’ve kept an eye on the weather in Europe, you’ll notice that temperatures in both France and Germany have been 8°C lower than the seasonal norm. This has impacted demand in the market, which have been satisfied by Russian gas flow- which reached an all time record this month.
Looking forward, the weather continues to be game changing for the market coupled with short-term markets; April 2017 Annual’s premium versus some of the other Annuals has increased. “The differential between April ’17 Annual and the furthest talked Annual – April ’22 Annual, for example, doubling from 1 to 2 p/th since the end of last year.”- Marex Spectron.