UK NBP natural gas prompt prices rose in February 2018, with the front month Mar-18 contract surging 7.6%, amid freezing cold weather towards the end of the month leading to very high demand, as well as a weaker GB pound. However, the Winter-18 contract fell 1.4% amid plummeting Asian LNG, U.S. Henry Hub gas, crude oil and coal prices, despite surging UK NBP natural gas prompt prices and a weakening of the GB pound. U.S. Henry Hub natural gas prices plunged 11.0% amid production rising to a record high 77.41 bcf/d, falling crude oil prices and forecasts for less cold weather and lower demand. Asian LNG prices dived by 19.2% amid a roll-over of contracts, as April delivery had a steep discount to March contract, which caused prices to initially drop by over 25%. LNG prices were supported by cold weather in North Asia and northwest Europe, as well as low South Korean storage, forcing countries to purchase LNG shipments to replenish inventories.
UK electricity baseload prompt prices ended the month higher, with the Mar-18 contract up 6.0%, amid very cold weather towards the end of the month leading to soaring demand and surging UK NBP natural gas prompt and carbon prices, as well as a weaker GB pound. Further price gains were capped by falling oil and coal prices, as well as a stable wind power generation throughout the month. The Winter-18 contract fell by 0.2% amid lower UK NBP natural gas far curve, European electricity, oil and coal prices, despite surging UK electricity prompt and carbon prices.
The Brent crude oil month-ahead Apr-18 contract ended February down 4.7% amid a broad sell-off in the global stock markets, U.S. jobs growth and wages rising in January, worries about faster interest rate increases in U.S, stronger U.S. dollar, as well as rising U.S. rig count and oil production reaching record high 10.28 mbpd. Further price falls were limited by rising global oil demand and OPEC and other non-OPEC countries’ strong compliance to the agreed 1.8 mbpd oil production cuts.
European coal for 2019 delivery fell 3.3%, dropping to the lowest level in four months, amid falling crude oil prices, weaker global stock markets, stronger U.S. dollar, a deal being struck at the Cerrejon coal mine in Colombia, as well as Chinese coal producing companies being encouraged to close inefficient and polluting mines and replace them with larger ones. Limiting further falls were snowstorms across China, surging demand from utilities and Chinese imports hitting their highest in four years at 27.81 mt.
EU carbon Dec-18 contract jumped 8.8%, rising for the eleventh consecutive month, amid monthly auctions clearing with strong bid to cover ratios and speculative buying as prices are expected to continue to rise, with the EU keen to see carbon prices as high as €35/tCO2. However, further price gains were capped by falling crude oil and coal prices.
The GB pound fell 1.2% versus the euro, amid rising Brexit tensions, slowing economic growth to just 0.3% in Q1-2018, weak retail sales and disappointing PMI manufacturing index as output and new orders slowed. Meanwhile, the EU economy grew at its fastest rate in 10 years in 2017, registering a 2.5% increase.
Temperatures averaged 3°C in February, 2.2°C below the seasonal normal average, while the local distribution zone demand averaged 10% above the seasonal normal demand.
On 9 February 2018, the latest UK power capacity auction, designed to sell contracts for extra power for delivery to the UK grid for 2021/22, took place. The clearing price dropped to £8.40/kW, well below forecasts and last year’s equivalent auction price £22.50/kW. 50.4 GW of backup electricity capacity was secured, with gas fired plants accounting for the lion’s share of the agreements, followed by nuclear generation, interconnectors and coal. While the low clearing price is good news for energy users, the government may have to redesign the capacity market policy and provide more support to new green capacity.
Our predictions made in the last report for February’s price movements were not quite in-line with actual market movements. We expected the UK NBP month ahead natural gas price to fall by 2.8% and Sum-18 to fall by 2.7%, while prices firmed by 7.6% and 0.7% respectively. Similarly, we forecast the UK month ahead electricity baseload contract to fall by 2.0% and Sum-18 to fall by 2.3%. However, they finished the month up, rising by 6.0% and 0.5% respectively.
To download a full copy of the report click here