UK NBP natural gas prompt prices fell in January 2018, with the front month Feb-18 contract falling 15.6% amid strong imports, warmer weather reducing demand and high wind power generation, which together lead to an oversupplied system for a large proportion of the month. The Summer-18 contract fell 6.3% amid plummeting UK NBP natural gas prompt prices, lower Asian LNG prices, falling coal prices and a stronger GB pound. However, contracts were supported by rising crude oil prices and an announcement by the Dutch firm NAM they wanted to reduce the supply from the Groningen natural gas field as quickly as possible. This was due to a series of earthquakes in the area creating a hazardous workplace for the employees. Asian LNG prices dived by 7.1% amid Chinese demand dropping as importers had already covered most of their first-quarter needs, while U.S. Henry Hub natural gas prices increased by 1.4% amid a massive snowstorm that battered the country, with the U.S. gas-for-power demand rising to record highs.

UK electricity baseload prompt prices ended the month lower, with the Feb-18 contract down 11.8%, amid plummeting UK NBP natural gas and falling global coal prices, as well as a stronger GB pound and high volumes of wind power generation throughout the month. Curve prices followed the prompt lower, with the Summer-18 contract down 4.5%, due to large drops in UK NBP natural gas prices, falling European electricity and coal prices, as well as a stronger GB pound. Considering Britain imports 5-6% of its electricity via power links with the EU, the UK's decision to leave the EU could lead to higher prices and supply shortages if the exit is not managed properly.

The Brent crude oil month-ahead Mar-18 contract ended up 3.3%, finishing the month at the highest level since December 2014, amid strong oil demand growth from China and the IMF lifting its global economic growth outlook for both 2018 and 2019 to 3.9%, as well as increasing speculative positions, OPEC oil cuts and an increasing strength in the U.S. and Asian stock markets.

European coal for 2019 delivery fell 2.6%, pressured by record high coal exports from South Africa's Richards Bay Coal Terminal, high Chinese coal output, warmer weather, rising wind power generation and the UK setting an emission limit on coal-fired power plants from October 2025. China’s coal output rose to its highest level since December 2015 as miners increased output by 1.1% from a year ago in order to meet increasing heating demand after Beijing softened winter coal burning restrictions in northern homes due to natural gas shortages.

EU carbon Dec-18 contract jumped 13.4%, hitting its highest since Q4 - 2012 during the month, amid upcoming MSR’s supply curbs, rising crude oil prices and aggressive speculative buying. In addition, the EU parliament agreed more ambitious 2030 renewables and energy saving targets in a bid to reform the EU power market and meet the climate goal of 40% below the 1990 level by 2030 as agreed under the Paris agreement.

Environmentalists called 2017 the greenest UK year ever, with more than half of the electricity generated in the UK coming from low-carbon sources for the first time in history. Nuclear and renewables generated more electricity in 2017 than all fossil fuels combined, doubling from 2010 to 2017 and reaching over 50% of the energy mix. Meanwhile, coal generation fell by 84% over the space of just five years, between 2012 and 2017, as the UK government is planning to phase out coal power generation by 2025.

Our predictions made in the last report for January’s price movements were not quite in-line with actual market movements. We expected the UK NBP month ahead natural gas price to rise by 3.2% and Sum-18 to rise by 1.7%, while prices plummeted by 15.6% and 6.3% respectively. Similarly, we forecast the UK month ahead electricity baseload contract to rise by 2.3% and Sum-18 to rise by 1.2%. However, they finished the month down, diving by 11.8% and 4.4% respectively.

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