19/01/2018 Energy Market Update

Natural gas commentary

This morning, within-day contracts are trading higher amid colder weather and an undersupplied system. The system is currently c.6mcm short with below-seasonal normal temperatures driving higher LDZ demand, currently forecast at c.258mcm. However, prompt contracts further out are bearish on warmer weather expectations from next week onwards. UKCS output is currently nominated at c.99mcm on reduced flows at Bacton whilst Norwegian receipts are also seen lower than recent highs at c.124mcm due to an outage at Oseberg. Meanwhile, higher within-day prices incentivise MRS withdrawals which help to support the system, with flows currently nominated at c.38mcm.

Further out, gas contracts are mixed with most trading close to settlement after heavy losses in recent days. Prices continue to be pressured by bearish oil markets, with Brent Crude trading around $68/bbl, down 1% day-on-day. An increase in U.S production to 9.8million bpd, after a drop at the end of last year due to cold weather, has outweighed the bullish effect of declining U.S inventories which are at their lowest seasonal level in three years. Meanwhile, the pound sterling sees strength against the dollar at $1.39 on the back of worries of a U.S government shutdown, although initial gains have been capped by disappointing UK retail data which showed retail sales dropped 1.5% in December.

Power commentary

The UK power market has witnessed limited activity this morning, with contracts trading in line with their gas counterparts. Wind generation is currently forecast at 6.7GW and provides the grid with 15% of total supply. Meanwhile colder weather sees total demand higher at 44GW, with CCGT’s operating near capacity in order to meet demand. Gas-for-power generation currently stands at 22GW and comprises 50% of the stack. Supply margins are also helped by imports from the continent, with the IFA interconnector importing the maximum of 2GW form France today.