Utility Week

UTILITY Week 11th December

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Markets & Trading This week Oil price slides to near 7-year lows Major oil producers elect to maintain current high production despite growing global glut The price of Brent crude has continued to slide to lows not seen since early 2009 aer Opec failed to agree on plans to limit further oil production to curb the growing global glut. On 4 December a key meeting of the market's major oil produc- ers decided to maintain current high production levels despite falling prices, which could see off smaller rivals. The price of Brent has traded steadily lower, to below $40 on 7 December, over $2 lower than August's six-year lows and the lowest since early 2009. As recently as summer 2014, the price of Brent stood at $115 a barrel and the collapse in prices has since emerged as a significant strategic threat to utilities with upstream interests by capping the value of European gas, which is still bought using oil-indexed contracts. British Gas parent company Centrica said in July that it would move ahead with a £1.5 billion strategy shi away from capital-intensive exploration and production (E&P) and centralised generation to focus on growth areas in the downstream area of its business. Centrica will now maintain a smaller E&P business of between 40-50 million barrels of oil equivalent (Mmboe) a year (from current levels around 75Mmboe). Saudi Arabia, the effective leader of the cartel, has said it will only consider cutting production if non-Opec countries agree to do the same. Moscow has dismissed the idea, according to reports. Analysts believe the price of Brent could fall to lows of $20 a barrel before the next Opec meeting in June. JA ELECTRICITY UK coal generation dips by 40% in a year The UK has slashed its use of coal-fired power by 40 per cent in the past year. Further falls are expected in the coming year. Electricity analysts at Platts Powervision said coal con- tributed 5.5TWh in November, almost half the 9.26TWh in November last year. The analysts said the slump is the result of lower weather-led demand this year because of the mild start to winter, as well as wind power output almost 50 per cent higer than last year at 2.6TWh. Coal-fired power is expected to continue its retreat with a string of closures set for March next year that has raised con- cerns of even tighter capacity constraints next winter. The UK is set to lose Scottish Power's 2.3GW Longannet plant, the 1.9GW Eggborough plant, and SSE's 1GW Ferrybridge and 0.5GW Fiddler's Ferry assets. The heavy losses will more than off- set the expected rollout of new investment in renewable energy and gas-fired power, analysts at PA Consulting told Utility Week. By early in the next decade very little coal-fired power capacity is expected to remain in operation in the UK, and energy secretary Amber Rudd has put in place plans to ban coal genera- tion entirely by 2025. Under the plans, the use of coal plants will be restricted from 2023 and shut by 2025, according to Rudd's energy policy "reset". GAS More gas storage capacity essential The UK government must "think about" security of gas supply as it becomes increasingly depend- ent on imports, the chief execu- tive of Centrica has warned. In his first major interview since taking the top spot at the UK gas giant, Ian Conn told the Daily Mail that the UK's reli- ance on gas imports means the country could face problems if pipeline faults occur. Compared with other countries that consume large amounts of gas, the UK has rela- tively little storage capacity, at 4.3 billion cubic metres, of which Centrica is responsible for 70 per cent through a subsidiary. In March 2013, aer a long and cold winter, the UK all but depleted its gas storage reserves. A fault on a gas pipeline to Bel- gium then forced market prices up by 50 per cent to all-time highs for short-term contracts. This winter, Centrica's Rough gas storage facility has reduced capacity by 25 per cent. Conn said the company is thinking about more capacity, and that the government should think about it too. Opec will not cut production unilaterally UTILITY WEEK | 11TH - 17TH DECEMBER 2015 | 27 Markets 150 100 50 BRENT CRUDE PRICE, 2008 - 2015 2008 2009 2010 2011 2012 2013 2014 2015 Brent crude prices have fallen to near seven-year lows and could fall even further aer a meeting of the world's major oil- producing countries failed to agree a production cut. The price of Brent on Tuesday 8 December was just over $40 per barrel, the lowest price for 2015 and almost 40 per cent lower than the price of $64.50/b seen in July this year.

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