Our Head of Markets, Jitesh Panchal breaks down the market factors that have influenced gas and power prices across August, crucial reading for any business exploring energy procurement.
UK gas prices reduced by an average of 5.86% week-on-week out to Win-26. The decreases were led by Russian gas flows through Sudzha remaining stable despite threat of potential damage to pipelines. European gas storage levels also reached the 90% level on 19th August, well ahead of the mandated 1st November deadline.
Temperatures across Europe were around 4 degrees lower which stimulated an increase in LDZ demand however with was party offset by reduced non-LDZ demand as renewable production was strong. On the supply-side Norwegian flows kept in line with the previous week however maintenance is scheduled to ramp up from 30th August to 20th September which will remove over 100mcm/day of gas supply. This will lead to a tighter UK balance coinciding with higher demand from power stations.
The Northeast Asian LNG price for October deliveries dropped by $0.30/MMBtu week-on-week to $13.80/MMBtu as demand appeared softer while global exports remain at the highest for this time of year despite the bullish impact of Ichthys LNG plant in Australia following the outage of Train2 on 19th August. The outage is expected to remain throughout September which is the equivalent of 5 LNG cargoes that will cause some supply tightness in the near-term.
In summary, while the price outlook bearish is the near term, recent gains from the Russia/Ukraine conflict continue to retrace. However, the medium-term geopolitics in the Middle East remain a concern and limit the downside.
The UK power market depreciated across the curve week-on-week out to Win-26 by an average of 4.11%. The UK month-to-date Day-Ahead price has averaged £57.01/MWh, trading as low as £14.68/MWh over the weekend. High renewable production helped to supress gas demand from power stations. The weather fundamentals are pointing more bullish as temperatures are forecast to gradually decline while wind speeds are expected to shift below seasonal normal from 28th August.
The UK nuclear forecast is currently very strong at 5GW out of the 6.5GW capacity although this is forecast to drop to 4.2GW by 21st September due to planned maintenance. The EUA-UKA spread narrowed over the past week with EUA’s closing the week at just £1.56/tonne premium to the UK carbon market. The UK commitment of trader’s report showed a decrease in net long positions by investment funds with the auction clearing £0.65/tonne below the prevailing spot market.
Soft market fundamentals and the return of full EUA auctions this week could provide bearish headwinds amid drop in TTF gas pricing. European weather conditions are supportive of the current rangebound price action while power emissions remain below previous year levels and provide a rather short-term weak signal to the market.
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