Power prices spike on gas supply issues

Tuesday 19th December 2017

Market considerations of the last fortnight have been dominated by gas supply issues on several different fronts. As the UK and continental Europe experienced the first extended cold snap of the season, so pressure was put on the physical supply system. This is of course normal for winter, but the cold weather came at the same time as unscheduled Norwegian production outages. Cracks in the North Sea Forties Pipeline were also announced – the closure and repair works that are required will significantly reduce domestic gas flows for several weeks. These issues were then dwarfed but an explosion at Europe’s main gas hub in Baumgarten, Austria. This had the potential to cut Russian gas flows to Italy – not a direct impact on the UK, but Northern European supplies suddenly seemed a lot tighter for all. Hence short term gas markets had one of the steepest upturns in many years on Monday 11th. Prices have since come off as weather projections improved and the Norwegian issues have been rectified. The initial panic regarding Austria has also subsided. However, there is still a certain twitchiness about markets as the effects of physical supply are felt, particularly with Rough storage now redundant.