Major downturn in EU carbon prices

Norwegian gas deliveries to the UK returned to normal

Norwegian gas deliveries to the UK returned to normal on Thursday with Langeled flowing at full capacity following the resolution of problems on the Troll field.  The more comfortable supply-demand balance on the UK gas system saw some of the premium gained on Wednesday relinquished on both prompt and futures markets.  News of increased LNG deliveries over the coming fortnight helped relieve prompt gas prices with contracts for this week falling by 12.45p while contracts for the remainder of the month shed 4.50p.  Prices for the remaining winter months were down by an average of 3.55p and Summer and Winter 22 contracts fell by almost twice that amount but remain almost 25% higher week-on-week.

GB power futures did ease on the day

The major downturn in EU carbon prices did not impact the GB power market as significantly as other European markets since the UK had invoked its Cost Containment Mechanism last week.  GB power futures did ease on the day however with the front month down by £9.50/MWh and prices for the calendar year 2022 down by £5.50/MWh. The GB Day ahead baseload contract eased by £22.50/MWh as wind generation is forecast to increase to over 10GW again today.  The week ahead shed half that amount on forecast higher temperatures and lower demand next week.

Carbon prices gave up the strong gains

Carbon prices gave up the strong gains of the first 3 days of the week with EU ETS unit prices falling by an average of €8.25 per tonne, the biggest day-on-day loss on record.  The coronavirus fear-factor which had revived with the emergence of the Omicron variant would now appear to be waning.  The severity of the new strain, and the effectiveness of existing vaccines, have led to optimism that further restrictions impacting economic activity may be limited and short-lived.  A more bullish mood emerged in recent days which saw crude gain over $5.00 over the previous 5 days but the market turned lower yesterday with Brent shedding $1.40.

UK gas system remains only marginally above the seasonal norm

While cold weather persists, demand on the UK gas system remains only marginally above the seasonal norm today, thanks to robust wind generation levels of over 11GW.  The system is comfortably supplied with the help of a season-to-date high LNG send-out of over 100MCM.  Despite the good supply-demand position, and the anticipated arrival of 12 additional LNG shipments over the coming 10 days, concerns for supply in the event of a severe cold spell remain.  This concern has seen yesterday’s losses on near futures contracts reversed with the front month up by 5.89p this morning.  Oil prices are little changed overnight with Brent still trading below $75.00.