Mid January Cold Weather Market Impact

Wednesday 18th January 2017

Gas and power prices have been driven predominantly by short-term over the last fortnight. This has shown a lot of volatility, mainly due to anomalous weather forecasts, particularly in Eastern and Central Europe, where a severe cold snap has led to demand on gas flows and also power generation. The cold weather was more significant than expected and thus took traders by surprise – gas prices naturally rose in response to heating demand, but there was also demand on UK electricity generation from Ireland and France. Whilst traditional generators felt the squeeze (compounded when two nuclear reactors went offline), there was some respite delivered by wind generation, adding a record 9.8GW of power to the UK mix.   

Another key driver – oil – consolidated its position following the OPEC production cut, with Saudi Arabia sustaining the physical barrel per day reduction. Coal has increased, although there are indicators the price may fall over Chinese New Year.

Longer term, there have been encouraging signs that more reliable renewables may be coming on line, with the news that the government review into the Swansea tidal lagoon has recommended the go ahead. Whilst the Swansea project is quite small, there are hopes that should it prove a success, it may be scaled up to much larger projects elsewhere in the UK, each with a generation capacity equivalent to the new nuclear plant at Hinkley Point.