Gas increases less significant than power

Friday 19th March 2021

The last fortnight has generally been bullish across gas and power, as last week’s interim report indicated. Various factors have pushed Annuals higher, with April 2021 shooting up to £60/MWh, the highest price for a front Annual since 2018. A lot of the sentiment came from the $1.9 trillion US post-covid stimulus package. This commitment to stimulate growth has associated energy demand, and so prices are buoyant. Another post-covid driver is the greenness of the recovery – this has led to record carbon buying, with prices rising above 40 euros; to put this in context, carbon was €15 at the start of the pandemic, so we are nearing a 3-fold increase.

In the wider energy complex, Brent crude oil has broken $70, a 14-month high, although at the time of writing this has crashed back down to low $60s, with the recent rally apparently at an end. The indication is that demand will not reach pre-covid levels for several years. Whilst there should be some respite for gas and power linked to the fall in oil, it should be noted that a generally more robust oil price stimulates US shale production, and the more shale gas means bearish pressure on the natural gas price.

Short-term markets have generally been more benign. Whilst they continue to spike, this has been less extreme than seen during the winter months, with more predictable weather patterns and relatively strong nuclear output. There has been some unexpected outages in Norwegian gas production, cutting flows into April, so any colder weather might yet have an adverse effect.