Lower wind availability means greater reliance on gas-fired power generation

15 March 2021

Seasonal contracts beyond Winter 21 recorded only marginal gains

 The UK gas market rose for a fourth straight session on Friday, making gains of almost a penny on near futures contracts to record week-on-week gains of 15%. Demand on the UK gas system fell lower again on the day as gas-fired generation was displaced with wind generation averaging 12GW. Gains on the prompt averaged just over a penny on the day and just over 5% week-on-week. The strong gains stretched through the next 12 months but seasonal contracts beyond Winter 21 recorded only marginal gains.

Carbon prices hit new record highs

The bullish sentiment on gas and carbon markets saw near futures power prices record further gains averaging £1.06/MWh on Friday. The front month recorded to weakest gain on the day but was still up by 9% week-on-week. Carbon prices hit new record highs with EU ETS unit prices finishing in a range between €42.79 and €43.66 per tonne.

 The dollar strengthened and took some of the steam out of the recent rally in oil prices

With the new economic stimulus package for the U.S. finally approved, the dollar strengthened on Friday and took some of the steam out of the recent rally in oil prices. Having come within 10 cents of $70.00 a barrel intra-day, Brent crude fell back to settle at $69.22 a barrel at the close of business. West Texas crude shed 40 cents to settle at $65.61 a barrel as the market still sees little sign of any major pick-up in demand in the States. Carbon prices moved to new record highs last week with EU EUA’s finishing in a range between €42.79 and €43.66 per tonne on Friday.

 The strong rally on the UK gas market seen last week appears to have stalled

Last week’s strong rally on the UK gas market appears to have stalled as early trades at the NBP show a slight easing in prices this morning. With demand just below the seasonal norm, the gas system is comfortably supplied with forecast deliveries running 13MCM long. Lower wind availability means greater reliance on gas-fired power generation and while this is limiting downside on the spot price, the day ahead contract is down 0.50p while the front month and full Summer 21 contracts are also down marginally. Crude oil and carbon prices continue to strengthen with Brent pushing towards the $70.00 a barrel mark.