Utility Week

UTILITY Week 2nd October 2015

Utility Week - authoritative, impartial and essential reading for senior people within utilities, regulators and government

Issue link: https://fhpublishing.uberflip.com/i/578707

Contents of this Issue


Page 26 of 31

Markets & Trading This week Mild start to October to drive prices lower UK's short-term gas and power markets to begin winter season at even weaker pricing levels Mild weather forecasted for the start of October will see the UK's short-term gas and power mar- kets begin the winter season at even weaker pricing levels than the historic lows paid for winter energy in advance. The UK is facing an abundant supply of European gas imports and liquefied natural gas (LNG) deliveries through Octo- ber, which is the start of the winter season for markets, according to analysts at Thomson Reuters Point Carbon. At the same time, mild temperatures will reduce demand for gas heating, to put further downward pres- sure on both gas and power markets. "Temperature forecasts indicate mild weather for early October, meaning sluggish [residential] demand while supply is picking up," an analyst note said. "We expect more Norwegian and UK gas this week. LNG sendout remains robust and there could be Russian gas via [the Dutch gas pipeline] from 1 October," it added. The price for gas delivered in October is currently at 40.25 pence per therm – significantly lower than the price for the winter season, which is at 42.49p/th. The lower price for October is unsurprising given that the coldest months come later in the season. But the prevailing win- ter price is even lower than the average paid over the past nine months for gas delivered this winter, which is 51p/th. UK power prices have followed a similar trend, with a winter contract paid for in advance averaging at almost £48/MWh in the past nine months, falling to £42.95/ MWh at current market rates, while the current price for power delivered in October is just £40.80/MWh. JA GAS Halite confident on backing for Preesall Gas developer Halite Energy is confident the Preesall gas stor- age project will receive financial backing, because its fast-cycle capabilities make it economi- cally robust in the UK market. Chief executive Keith Budinger told Utility Week that since the project had received consent from energy minister Lord Bourne in July, it has "had a lot of interest from domestic and overseas parties". He said: "There's been a sig- nificant increase [in interest] in the project, and we're currently in discussions with a number of industry and financial investors." This confidence comes despite warnings from the indus- try that new gas storage projects will remain "dead in the water" unless developers can convince the government to subsidise them. Managing director of trade group Gas Forum, David Cox, told Utility Week last month that the government has "got to believe that more storage is needed in the market" so that it changes its strategy of not subsidising strategic storage. The 900 million cubic metre Preesall gas storage facility is proposed to be constructed on the east side of the Wyre Estuary in Lancashire, and will be used to store and extract gas from local underground salt caverns. Halite hopes investment dis- cussions will be finalised by the first quarter of 2016, enabling it to "break new ground" on the project by Q4 2016. GAS UK dependence on imports wanes in Q2 The UK's dependence on gas imports eased in the second quar- ter of this year, as gas production bucked a decade-long downtrend. Government data released last week showed the largest increase in domestic gas produc- tion since 2010, cutting the UK's gas imports in the second quar- ter of this year by 13 per cent compared with last year. Gross production of natural gas in Q2 2015 was 12 per cent higher year on year, the report said, adding that this "stands in marked contrast to recent years". "Production over the last ten years has decreased by over 7 per cent on average per annum since production peaked in 2000," the report added. This meant that nominated pipeline imports fell by 7.9 per cent year on year, while LNG imports fell 19 per cent. While production increased, so did the UK's demand for gas. Overall gas demand rose 5.2 per cent in Q2, driven by a 17 per cent increase in domestic con- sumption due to cooler tempera- tures in Q2 2015 compared with the same period last year. The UK is facing an abundant supply of LNG Tricks of the trade Jillian Ambrose "Gas-fired power is now the electricity of choice" The UK's power generation mix witnessed a quiet revolution this summer. Recent government data shows that Q2 2015 was the first time that renewable energy con- tributed a greater share to the mix than both coal and nuclear power. For those interested in the numbers: that's 25.3 per cent for renewables; 20.5 per cent for coal; and 21.5 per cent for the UK's nuclear fleet. The government said the rise in renewables was due renewables output would man- age to contribute a greater slice of a smaller pie. Yes, renewables have a part to play and deserve the government's support. But if this summer says anything it's that gas-fired power is crucial too, especially as uneconomic coal plants close at an increasing pace. Failure to bring forward investment in new gas plant raises questions about the summers to come. to higher wind speeds and increased capacity. And the renewables lobby said it was due to the "fundamental role" that renewables play in the UK's security of supply. But to me, this story says at least as much about collapsing commodity prices than anything else. With wholesale gas prices at historic lows, gas-fired power (at 30 per cent) has become the UK market's electricity of choice when just a couple of years ago that title belonged to coal. In mid-summer, with demand low and gas prices even lower, it is hardly surprising that coal- fired power should be pushed aside in favour of gas, and that UTILITY WEEK | 2ND - 8TH OCTOBER 2015 | 27

Articles in this issue

Archives of this issue

view archives of Utility Week - UTILITY Week 2nd October 2015