Our view on the spike in Winter Energy Prices
Wednesday 19th October 2016
Winter power prices have increased dramatically through the first fortnight of October. Winter curves are at eight-year high levels and have ascended rapidly. This upturn was initially driven by news about French nuclear power station outages – maintenance and unplanned safety checks potentially mean that UK power will divert via the Channel interconnector to more profitable continental markets. Other nuclear issues in Germany and Switzerland further compounded anxieties over the seasonal electricity price. At the same time, other drivers have impacted on power prices – coal increased on strong Chinese demand and also due to Hurricane Matthew disrupting Colombian exports; oil went back above $50 on the expectation of an OPEC production cut (often promised, but rarely fulfilled), and also due to some hurricane related refining issues in the Gulf of Mexico. European carbon costs were up too, recouping their post-Brexit vote losses, again giving impetus to wholesale. Variable wind speeds have caused significant volatility in the short-term power market, along with spikes in gas.
Gas has risen this month, although not to the same extent as power. The key driver to this is the sustained strength of crude oil. As a result we have seen gas annuals at their highest levels for 18 months. Short-term gas prices have had the threat of Norwegian processing strikes impacting at a time when the European temperatures have dipped beneath seasonal norms. Further significant impact has been felt across all gas curves due to the drop in Sterling following the hard-Brexit rumours – this equates to more expensive gas imports being purchased in higher value Euros.
Will Bridge, Head of Procurement