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Utility Week 10 07 15

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28 | 10TH - 16TH JULY 2015 | UTILITY WEEK Markets & Trading This week LNG glut to drive down gas prices in Europe LNG will lower prices to a level that incentivises coal to gas switching in the generation market European utilities will be pay- ing lower wholesale gas prices until the end of the decade as new liquefied natural gas (LNG) projects are poised to flatten the global market. From 2016-2020 LNG prices in Europe, Asia and the Americas are set to converge, according to analytics company Eclipse Energy, allowing European gas buyers to compete more easily for cargoes which are typically absorbed by the higher-priced Asian market. "The start-up of BG Group's Australian Queensland Curtis project late last year marked the start of the larg- est build-up of LNG supply capacity since gas year 2008- 2009, with 10 to 12 trains due online by next summer," said Eclipse Energy head of gas analytics, May Mannes. "With demand struggling to keep pace with supply, we believe this will mark the start of a transformation of the global gas market, and drive European gas prices well below where the current forward curve indicates," Mannes said. Analysts at Eclipse Energy said the glut of LNG due to enter the European market will push prices down to a level that incentivises coal to gas switching in the power generation market, adding that there is already evidence of this in the UK market where carbon costs are higher. UK demand for gas-fired power will increase in the short term as gas prices fall, but post-2018, power demand for gas will begin to drop off as the market price strengthens and new renewable, interconnector and nuclear capacity comes to market, the analysts said. JA ENERGY Wholesale energy prices at record lows The wholesale market price of UK gas and power has hit its lowest quarterly average in half a decade, with Q3 prices expected to remain under pressure as calls for retail price cuts mount. Energy market specialists at Icis posted their Q2 power index results last Friday showing the average price at £44.72/MWh, its lowest since Q2 2010, while wholesale gas averaged 47.1p/ therm, the lowest quarterly aver- age since Q1 2010. "The falling oil price and the currency impact from Grexit fears are pushing down UK gas prices, and the effects are clear on the UK power price as well," said Icis head of power Zoe Double. The fresh data followed news the previous week that gas for delivery in winter 2015 hit its lowest level ever at 47.4p/therm, almost half the price paid for the winter 15 contract when it was first traded in the wholesale market at around 81.45p/therm in 2011. Market experts said the price of winter gas was now almost as low as it could go, but energy companies continue to charge customers the same tariffs. "Why on earth are hard- pressed consumers not seeing the full benefits of lower whole- sale prices?" demanded Uswitch director of consumer policy Ann Robinson. Energy UK chief executive Lawrence Slade defended energy suppliers, saying that "whole- sale costs are only part of energy bills so cost reductions are never able to be exactly in line". GAS UK holds nerve as Ukraine gas is cut The UK gas and power markets showed little sign of concern over news last week that gas supply talks between Russia and Ukraine had failed, leading to a supply cut on Wednesday morning. Supply disruptions between the two have in the past impacted on the gas supply security of Europe because of Ukraine's importance as a transit area for Russian gas deliveries to countries including Germany. However, the wholesale price of winter gas in the UK firmed by less than 1 per cent on Wednes- day morning from 47.49p/therm at Tuesday's close to 47.75p/ therm shortly before 09.00. A UK energy trader told Utility Week it was unlikely that the UK market would rise significantly on the news unless a further escalation emerged. Mild temperatures and ample LNG supply have helped the UK shrug off concerns about interrup- tions in Russian supply, he said. Europe will be better able to compete for cargoes Tricks of the trade Jillian Ambrose "The final word is, energy trading is above board" The UK's wholesale power market is one part of the energy industry that was probably not holding its collective breath over the findings of the Competition and Markets Authority (CMA). Energy traders were certainly at their desks in time for the 7am publication of the much- anticipated report, but CMA- related concerns from the whole- sale side of the energy space have long since dissipated. And the report itself confirms why: there's no abuse of power here is where energy traders might really have something to celebrate. The traded markets are noto- riously shy of any media glare and may now see an end to the recent curiosity of the national press. The final word, aer years of reputational damage with each rigging scandal, is that energy trading is above board. The big six and their regulator still have a lot to answer for, but the trading desks will happily keep out of it. in the UK generation market, and no problem with how the vertically integrated players take part. In addition, concerns over a lack of transparency in power trading have also been dispelled by the CMA, which noted that trading data is available from market platforms by those who want it. It could have been far worse. While the retail market looks to be subjected to a reincarna- tion of Labour's price freeze pledge, the electricity market has escaped the party's call for a return to pool trading. But in many ways the CMA probe has always been about restoring public trust, and

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