Utility Week - authoritative, impartial and essential reading for senior people within utilities, regulators and government
Issue link: https://fhpublishing.uberflip.com/i/461284
28 | 13TH - 19TH FEBRUARY 2015 | UTILITY WEEK Markets & Trading Tricks of the trade Jillian Ambrose "The rules have changed in a world of bargain Brent" When a butterfly flaps its wings in the Middle East, it seems there's no part of the world that won't feel the hurricane. For months, the wider energy markets have felt the aershock tremors of the Opec-triggered global oil crash with falling prices and shiing economics for project developers. But this week brought to light a new con- sequence: a deluge of liquefied natural gas into the UK. Good news for anyone with a relatively unhedged forward posi- balk at the oil-indexed price tag attached to LNG, and this pre- mium over hub-based European prices mean they'll always take precedence. But the rules have changed in a new world order of bargain basement Brent. Now, the same oil-indexed contracts which used to hold Asian pricing levels alo have brought the oppo- site amid lower Asian demand overall. It's the UK offering an attractive delivery market – and the volumes are flowing in. tion. Less so if you're lobbying government on the need to coun- ter import scarcity with gas stor- age projects – or if, like Centrica, you locked in a £4.4 billion LNG supply deal with Qatar in a vastly different price environment. For the better part of half a decade, the UK has scrambled to attract LNG cargoes, usually securing long-term contract cargoes only in the so-called "shoulder months" of spring and autumn when Asian demand wanes. The rules were clear: if anyone was guaranteed cargoes in a competitive global market- place, it was Japan. Aer all, Asian countries – including Japan, Korea and China – don't This week UK LNG imports soar as Asian price crashes Asian LNG prices fall below those of the UK for the first time since Fukushima nuclear disaster The UK could see a glut of lique- fied natural gas (LNG) flood into the market despite histori- cally low price signals, because of even lower prices in Asia, according to market experts. In January, the UK received seven LNG cargoes, compared with one cargo in the same month last year, analysts at market reporting agency Icis said. Head of global LNG markets at Icis, Ed Cox, told Util- ity Week that in Asia, LNG prices have fallen below those of the UK for the first time since the Fukushima nuclear disaster forced Japan into an increased dependency on gas-fired power. Since 2010, strong demand from Asian markets – including Japan, South Korea, Taiwan and China – has put in place a strong price premium over the UK, meaning it is difficult to attract cargoes in the competitive global market. But in the first week of the month, the price for LNG delivered to Asia in March closed at 45.63 pence/ therm, while the UK price closed at 46.08p/th. "A combination of weak winter gas demand across key importing Asian countries, additional global produc- tion and lower oil prices have hit market sentiment with spot prices falling fast," Cox said. As a result, UK LNG imports have risen to account for around 25 per cent of the UK's total gas supply between October and February. Although UK gas prices for next-month delivery are currently 30 per cent lower than at the same time last year, Cox said forward pricing trends suggest the UK may continue to be a more attractive market for LNG exporters "for the foreseeable future". JA ELECTRICITY Record wind adds to wholesale price dive The UK's wholesale price for elec- tricity slumped further in January as record wind output and stead- ily falling gas prices continue to take a toll on market levels. The price for electricity on the short-term market fell 7 per cent in December and a further 10 per cent in January, data from price agency Platts shows, as wind generators recorded their most productive month ever. The average market price for electricity delivered the next day averaged just £39.14/MWh in January compared with £43.55/ MWh in December. The January average fell around 17 per cent below the average in the same month last year. In addition to stronger wind generation, which lowers the market price because the technology receives payment through subsidies, wholesale gas prices have continued to weigh down pricing levels. Platts data shows the short- term gas market at a 13 per cent discount from December's levels and almost 30 per cent below the average price seen in January 2014. Gas for next-day delivery averaged just 46.14 pence/therm in January 2015 from an average of 65.11p/th in January 2014. Renewable UK said wind power output averaged a record 14 per cent of the total genera- tion mix in January. The month began with half-hourly wind power achieving a record stake of the total generation mix at 31 per cent on Friday 2 January and in the week from 5-11 Janu- ary wind power exceeded its previous average weekly record to reach 1.119TWh of electricity generated, Renewable UK said. ELECTRICITY Sizewell B approved to run until 2025 Sizewell B has received approval from the Office for Nuclear Regulation (ONR) to continue operation for the next ten years. The industry regulator approved the periodic safety review (PSR) of Sizewell B, mean- ing it can continue delivering low-carbon power to more than 2 million customers until 2025. The nuclear power station's director Jim Crawford said: "It takes five years of planning and 200 people from within and outside the business to scruti- nise every area of Sizewell B to ensure it meets current stand- ards of operation." This is the second PSR to be carried out at Sizewell B, the UK's only large pressurised water reactor. Staff at the plant are already working on the case for the next ten years to ensure operation to at least 2035. All UK nuclear power stations are obligated to carry out a PSR every ten years. The UK received seven LNG cargoes in January