A complex mix of factors last week saw prices split, and the short-term prices going up, but from Winter ’17 onwards pricing fall off a little, which might help up until the contract start dates.
Prices went on a bit of a roller coaster last week. They started the week strongly following on the trend from Friday afternoon, mainly as a result of unplanned outages in Norway, which reduced the amount of available continental gas come into the UK.
There was an increase in demand for gas to be converted into power, possibly results of the increase in air conditioning load due to the hotter weather, and a week pound supported that trend. By about Thursday the pound had rallied, and also we had an unexpected increase in wind generation, which pushed prices back down for a short period of time until the impact of the ongoing outages in Norway began to reassert themselves.
Another important news item last week was the announcement by Centrica that they were going to close the Rough gas storage facility, the UK’s largest gas storage facility. This is an important part of the UK’s gas balancing mechanism. Though the risk has been mitigated somewhat by the increased connectivity through inter connectors with the continent, it does give us a little bit less control and is likely to lead to increased volatility in gas prices going forward.
Now the immediate impact may not be great because in reality more gas will be available to be used in the market instead of being injected into the storage facility itself. So it could actually dampen prices in the short-term.
However, in the long-term we can certainly expect that speculators by market traders might push prices up. It certainly could result in an increase in volatility and prices, particularly around the winter time when of course gas demand is at its highest.
If you have any questions about this report, or anything else that’s going on in the energy industry, or anything that might help your business improve its efficiency and profitability then, please contact Auditel for a no obligation consultation