Tightness expected in UK power and gas markets

Power margins are set to be tight this week, as demand is expected to pick up and renewables are set to be low despite being reasonable today around 8GW. Wednesday and Thursday this week the power system is expected to be particularly tight.

The UK linepack is forecast to close short at -24.9mcm. LNG send out is low around 22.78mcm with storage withdrawal attempting to aid the system flowing at 18mcm. IUK and BBL imports are strong at 34mcm and 44mcm respectively.

Colder than seasonal normal temperatures could persist in the UK and wind energy is likely to dip lower in the coming days before temperatures are expected to bounce back slightly after the 10th January. Uncertainty over the outcome of a Sudden Stratospheric Warming event could also lead to volatility.

ICIS have reported that day ahead baseload power in the UK saw a monthly gain of 28% in December, averaging ￡59.97MW/h, a 50% gain year on year. Cold weather, low wind generation and strong Asian demand increasing the JKM feeding into NBP were the main drivers. 

Asian demand and colder weather continue to drive prices in Europe, the JKM remaining high and likely to draw cargoes to Asia from Europe. Coal plant closures in Germany and a cold start to the month are likely to keep prices bullish.

There is little liquidity in the market as of yet this morning, Feb 21 now becoming the front month contract. NBP last traded 59.2p/th up 2.7p/th for Feb 21. It remains to be seen whether the new covid restrictions will dampen demand at all. 

The GBP is currently trading around €1.11. Dec 21 carbon is extremely strong up 4% on the day last trading €34.260/tCO2e due to tighter power fundamentals. Brent crude oil is currently trading just shy of $53/bbl, a weaker dollar attributed to some of the move.