Surge in UK gas prices

29 July 2021

Prompt prices recorded moderate gains

Declining LNG storage stocks and the ongoing restriction of Norwegian deliveries due to the Troll outage left the UK gas system in deficit for most of the day yesterday.  The UK gas market response was focused on the impact for mid-term supply as increasing wind availability relieved gas demand somewhat yesterday and prompt prices recorded moderate gains.  The front month and September both stepped sharply higher however, gaining over 5.00p to break through the 100.00p mark.  Q4 21 gained 4.83p to settle at 103.46p and while Q1 22 settled just under 100.00p, the full Winter contract closed at 107.27p.

GB power futures higher again

Yesterday’s surge in UK gas prices, coupled with rising emissions costs, pushed GB power futures higher again yesterday.  The step increase on near futures contracts leaves prices up by almost £10.00/MWh, and over 10% higher so far this week.  EU ETS unit prices gained almost €1.00 per tonne yesterday. The day ahead baseload contract moved lower again as wind generation is forecast to strengthen further today.  Despite a forecast for reasonably good wind availability for next week, the week ahead contract gained £7.50 to settle at a historically high £102.25/MWh.

 Crude oil markets continued to trade rangebound

Crude oil markets continued to trade rangebound for a third session in a row as no new fundamental drivers emerged to give direction.  Brent crude has already recovered the bulk of the premium lost during the sell off last week and it is edging towards the $75.00 mark as some more positive signs of increased demand emerge.  The global benchmark, Brent crude gained a further 26 cents to settle at $74.74 on Wednesday while the U.S. benchmark, West Texas Intermediate, gained 40 cents to close at $72.39 a barrel as weekly inventory data from the Energy Information Administration showed a draw on gasoline stocks last week.

 Near futures contracts are trading higher

Demand on the UK gas system has dropped as renewable power generation has picked up substantially overnight.  Wind is providing over 10GW and solar almost 4GW and combined renewable power production is over double the fossil fuel generation level this morning.  The system is running 20MCM long with increased Norwegian deliveries coming to the UK, although it is unclear if the Troll outage has ended.  Prompt gas prices have opened lower on the improved supply/demand balance but near futures contracts are trading higher again.  Crude oil has broken through the $75.00 mark overnight and Brent is currently trading at $75.45.