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Posted on: 08/11/2021
Head of Sales Trading, Fanos Shiamishis and Spot Power Trading Analyst, William Lake comment on last month’s forward and spot markets. They recap on the latest updates on Nordstream 2, Gazprom announcements and the first-time the minimum baseload price for Day Ahead N2EX has been below £100 for over 10 weeks.
Seasonal gas and power prices
Summer-22 decreased from £121.03/MWh on the 1st October to the £114/MWh on the 15th October. Continuing a downward trend, Summer-22 closed at £102.69/MWh on the 31stOctober. Summer-22 gas has followed a similar downward trend, opening the month at 121.06ppth, reaching 111.74ppth on the 15th October, then closing on 31st October at 103.12ppth.
October trading opened with a tighter supply outlook due to colder temperatures. The bullish views were noted in significant buy interest on the November NBP contract which peaked at 343p/th on 6th October. The strong November level indicated a continued risk to the gas inventory build during November and December, thereafter, pulling up the Q1 and Summer-22 contracts. Then record soaring prices for November-21 saw bearish technical traders sell into the contract. The period 6th to 11th October saw £1.40/th wiped off the value of the Nov-21 with markets responding bearishly to Gazprom announcements that they plan to complete filling Russian gas storages by 1st November.
Further affirmations on the completion timeline for Nordstream 2 on 14th October, again triggered a sell off into Q1-22 where prices thereafter held within the 220p to 230p range. Tellingly, the market seemed to be desensitised to capacity bookings into Poland when Russia opted not to book any month ahead gas transmission capacity yet again. The market did not react with the usual rally. The final driver of losses came on 27th October where Putin statements urged Gazprom to raise gas storage levels in Austria and Germany once Russian inventories were full. Market traders have been watching with bated breath to see if bookings into Germany increase significantly, with all eyes on today (8th November), Russia’s new target date to fill storage.
Although Power was led by gas in the forward trend, a mid-October update on a partial restart of the UK France power interconnector reduced some peak contracts’ risk premium.
Summary of oil, coal and carbon markets
In oil markets, Brent Crude opened at $79.32/barrel and sat between $80 to $85 from the 5th to the 17th October and then closed for the month at $84.40. Oil generally tracked global economic forecasts with optimistic demand outlook edging Brent up by over $4/Bbl.
Coal (ARA spot) began the month around the $233/tonne mark with a high of $274.50 on the 4th October, closing back at $233. With China supply increasing from both domestic sources and imports, inventory builds have abated the previously reported supply crunch with stock levels across Asian markets sufficient to meet current output requirements.
And lastly, Carbon EUAs saw a busy month in news headlines but no real substance or fundamental supply/demand changes, which left EUA’s trading around the €60/tonne level. Significant drops (to €54/Tonne) were noted in mid-October where EU ministers were reported to restrict speculative trading but thereafter prices recovered swiftly back up once reports could not be substantiated.
Short-term energy markets
The maximum system price for October was recorded at a £461.22/MWh on 12th October between 1830 and 1900. This maximum price for the month occurred during a day of relatively low wind (around 4GW), but then there were discrepancies between National Grid’s wind forecast and Tesla’s forecast of about 1GW. Demand on the transmission system peaked at over 38GW, and on a day that had for the most part seen a long transmission system, Rye House CCGT was brought on by National Grid at £3,750 between 1500 and 1930 to balance the system during this evening peak. Ratcliffe1 coal station was also brought on during the afternoon, with its accepted offer price peaking at £2,950. This continued the trend of coal plants filing the gap in UK renewable generation. There were no major losses of thermal or nuclear generation during the day.
Negative prices also returned this month, with the minimum system price reaching minus £60/MWh on 1st October between 1500 and 1600. The system was over 1GW long at this time when demand was low at around 24GW before the evening peak begun. Wind returned strongly towards the back end of September and on 1st October, it was out turning strongly at over 12GW, which was enough to push prices below zero. Low demand and high wind output meant that National Grid curtailed wind output for a large part of the day, and over 2.5GW of potential production was reduced when prices reached the minimum negative value.
Maximum Day Ahead N2EX prices (Base) reached a peak of £298.61/MWh on 15th October. This was down from the high of £424 reached in September, however the average baseload price in October was £179, which was only £10 cheaper than September. This was led mainly by wholesale gas price continuing its months long rise, but it peaked on 5th October when the day ahead gas was over £3/th for the first time. UK and European gas traders have been waiting for signals from Russia for weeks as to whether they will increase supply to the continent. Gazprom’s main storage sites in Germany and Austria were reportedly only between 10-20% full, which was worrying many as to just how high gas and energy prices could go this winter. Putin’s comments in late October stating he would recommence flows helped to clarify the situation, and gas prices have since declined to below 200p/th. Along with a mild winter forecast, it looks like the worst scenario might be avoided. The minimum price was £89.13/MWh on 30th October, the first-time baseload price had been below £100 for over 10 weeks.
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