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Chart of the Week



Woah, we’re half way there – H119 wholesale price review

Alex McGregor
Alex McGregor

Half way through 2019, we have seen prices across the wholesale power and gas market bottom out, and in this Chart of the Week, we explore some of the highlights from H119.

Once upon a time not so long ago – recent lows

Day-ahead NBP gas prices declined for the ninth consecutive month in June, dropping to a two-year low of 25.2p/th on 26 June, 58% lower than at the start of the year (60.6p/th). Near-term gas contracts have been pressured by an influx of LNG to the UK, with 82 tankers arriving in H119, up from 25 in H118 and a total of 69 in the whole of 2018.

Comfortable gas supplies have also weighed on seasonal gas prices, which declined by 8% on average from January. The drop in prices can be best observed by looking at the spread between the front-quarter (Q319) and front-season (winter 19) at the end of June. This spread reached 23.8p/th in the last week of June, despite the winter 19 gas contract dropping to a 15-month low of 49.8p/th. It is the biggest spread since 2009 according to data from S&P Global Platts.

This wide spread between summer and winter prices (i.e. Q319 vs winter 19), is a signal for injections into storage, which ended H119 at 0.66bcm (47% capacity), compared to 0.63bcm (45%) at the end of H118.

Take my hand, we’ll make it I swear – power follows

Power contracts have continued to follow their gas counterparts lower, as day-ahead power ended June at £36.1/MWh, having previously dropped to a near two-year low of £35.8/MWh at the end of May.

The influence of gas on power prices comes as CCGT generation accounted for 45% of total power generation in H119, up from 43% in H118. Pressure also arises as more renewables capacity is commissioned this year and as the NEMO interconnector (1GW) came online in February, keeping power supplies comfortable.

The fall in power prices was despite the recent recovery in EU ETS carbon prices, which peaked at €27.5/t on 26 June, a fresh two-month high and approaching April’s 11-year high of €27.8/t. Prices were supported towards the end of the month by a combination of lower auction volumes, and a heatwave across Europe. However, Brexit continues to create an uncertain future for carbon prices, driving concerns for EUA demand and the potential for UK allowances to flood the market.

We’ve got to hold on to what we’ve got – outlook

Temperature forecasts are currently expecting above seasonal normal temperatures for much of the next two months, keeping gas demand in line or below with seasonal norms.

This will be aided by comfortable gas supplies which, despite a recent decline in LNG arrivals to the UK, will also feed into power prices. However, upwards pressure can be expected if a recovery in Brent crude oil prices occurs following OPEC’s decision to extend production cuts until March 2020. Therefore we predict wholesale power and gas prices to remain near recent lows over the coming months.

(Download the Chart of the Week here to see the full image)

In our weekly Energy Market Bulletin, we track and explore these trends in the wholesale market, providing insight and analysis on recent developments. For more information or a free trial, contact Alex McGregor – a.mcgregor@cornwall-insight.com.


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