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UTILITY Week 11th July 2014

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28 | 11th - 17th July 2014 | utIlIty WEEK Markets & Trading Tricks of the trade Jillian Ambrose "By the end of this month we will be awash with LNG" The UK's gas and power markets continue to limbo dance through the summer, giving no indica- tion of just how low they actu- ally can go. As gas prices faltered with the start of an early spring, trad- ers thought they knew. At the time, I heard a range of answers, from 40 pence per therm to 45 pence per therm at which point, in theory, increased demand for gas as a power generation source would cause prices to stabilise. the end of this month the UK is expected to be absolutely awash with the stuff. So now where do traders say the floor price is? Unsurprisingly, fewer people seem willing to give a number. What they will give is a month: September. By then, storage facilities will be filled to the brim across Europe, while LNG cargoes might still be rolling in. Until then, the only thing I'm told for sure is: we're not at rock- bottom yet. But here we are, more than 15 per cent lower than where the market guessed the floor might be, at four-year lows, despite burning more gas than we have done in years. Anyone who thought market fundamentals might stem these steady losses, obviously wasn't looking at the big picture. And by "big", I mean "global". Japan's ample storage stocks and lower than normal forecasts for summer demand have made the UK market more attractive for summer LNG cargoes than it has been since Japan's nuclear disaster in 2011 made it the most profitable destination for Qatari gas. By This week UK July imports of LNG to almost double UK set to see highest import volumes of liquefied natural gas for this time of year since 2011 Over the coming weeks, the UK is set to see the highest import volumes of liquefied natural gas (LNG) for this time of year since 2011, analysts told Utility Week. Following Japan's nuclear shutdown in the aermath of the Fukushima disaster three years ago, the global LNG market has tipped in favour of the Asia-Pacific region, where strong energy market prices are more attractive to producers such as Qatar. But this month the UK's import levels are expected to almost double from the volumes seen in July last year, with three Qatari LNG cargo deliveries already received and a further three expected before the end of the month, said Thomson Reuters Point Carbon analyst Mai Phan. The recovery in LNG imports comes despite histori- cally low prices in the UK gas market because Asian demand has dropped, she explained. "The Asian LNG market is bearish, with very low prices, because gas stocks are high following a milder than usual winter, and are expected to remain healthy through a cooler than expected summer," Phan said. Asian demand typically increases in July in response to the need for more gas-fired power to run air- conditioning units. Last year, UK import volumes dropped from an average of 48mcm/day in June to just 23mcm/day in July as Asian demand picked up. But this month the average is expected to remain strong at 41mcm/day. The steady flow of LNG into the UK gas market is expected to drive already weak gas prices even lower. Gas market prices are already at levels not seen since 2010. JA Gas Winter wholesale contract at its lowest The wholesale price of gas for delivery this winter, which has traded on the market for the past three years, has fallen to its low- est level ever paid, analysts and traders confirmed. The fresh lows for the Winter 2014/15 gas contract stand alongside four-year lows for near-term gas aer months of steadily falling prices, which could heap further political pres- sure on energy companies to cut household bills. Market participants first began trading gas for delivery in winter 2014/15 in 2011, but recent bearish market fundamentals have pushed pricing levels to the lowest ever for this contract, at around 55 pence per therm. "Monday's Winter '14 gas price of 55.30p/th is the lowest since the contract started active trading, pushed down by weak prompt prices and high storage levels," said Platts energy analyst Alex Froley. A UK energy trader told Utility Week that the price briefly fell below 55p/th early on Mon- day 7 July, before returning to similar levels in the aernoon. Froley said "prompt gas" for next day delivery has fallen to levels not seen since September 2010 at around 35.30p/th, com- pared with last year's average of 68p/th across 2013. Last year saw elevated pric- ing levels aer the UK depleted its domestic gas storage stocks in late March following a long, cold winter. By contrast, the most recent winter le gas storage relatively untouched. EnErGy Moody's: power prices will be stable Wholesale power prices are set to remain stable through to 2020, due to declining demand, weaker gas prices and the roll- out of offshore wind, according to Moody's. However, the rating agency said an accelerated decline in electricity demand could cause prices to fall. "We believe that widely expected tightness will be short-lived as energy efficiency gains, the rollout of offshore wind power and the return of mothballed gas plants will keep prices in check," said Scott Phil- lips, Moody's vice president and senior analyst. "Our view is that power prices will stay around current levels, or £48-53/MWh, through the end of the decade." Moody's expects that pres- sure on the profitability of gas-fired plants will continue, but coal plants should fare bet- ter. SSE is in a better position than Centrica given its greater proportion of coal and renew- able generation, as well as its regulated operations. Three more Qatari LNG cargo deliveries expected

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