Many wholesale power and gas contracts fell for a second consecutive month, following commodities prices lower. A high influx of Liquified Natural Gas (LNG) imports across the month, and milder than expected temperatures, have led to comfortable gas supplies and below seasonal normal demand.
Looking towards power contracts for delivery in the near-term, day-ahead power fell for a second month, down 3.3% to average £62.7/MWh in November. Prices varied throughout the month amid fluctuating renewables output which, when low, acts to push wholesale costs higher as more expensive forms of generation are required to meet demand. The contract dropped to a 14-week low of £56.9/MWh on 6 November amid lower gas prices and forecasts of increased wind generation the following day.
All seasonal power prices fell in November, down 3.3% on average. Summer 19 power lost 5.0% to average £55.9/MWh, hitting an 11-week low of £54.0/MWh on 5 November. Contracts have been pressured for a second consecutive month by falling gas and commodity prices, including EU Emissions Trading Scheme (EU ETS) carbon, which dropped to €15.2/t at the start of the month. The cost of emitting carbon is factored into the cost of power generation, meaning lower EU ETS carbon prices lead to lower power prices.
Day-ahead gas dropped 3.5% to average 64.5p/th in November. The contract went as low as 59.8p/th on 5 November, pressured across the month as a total of 11 LNG tankers arrived at UK terminals, boosting gas supplies. All seasonal gas contracts decreased in November, falling 6.6% on average, following oil prices down. Summer 19 gas dropped to a 14-week low of 54.5p/th on 26 November.
Four, seven and 13-month lows for carbon, coal and oil
EU ETS carbon was down 3.1% to average €18.9/t in November, its second monthly decline. Prices started the month at a four-month low of €15.2/t, amid uncertainty over the UK’s future carbon pricing policy following the Autumn Budget announcement that, in the event of a “no-deal” Brexit, a Carbon Emissions Tax would be imposed in the UK to replace the EU ETS. Prices rose throughout the month and peaked at €21.2/t on 23 November, driven by the upcoming Market Stability Reserve which will reduce upcoming auction volumes in an effort to cut levels of oversupply in the market.
API 2 coal prices fell 10.3% to average $87.3/t in November. Coal fell to a seven-month low of $83.0/t on 21 November, following a fall in Chinese demand as the country banned seaborne thermal coal imports until 2019.
Brent crude oil prices fell 16.4% to average $67.6/bl in November. Prices dropped as concerns of a tightening market disappeared following the US granting waivers to several countries from its sanctions on Iran. Fears of an oversupplied market has been responsible for prices falling to a 13-month low of $57.6/bl on 29 November.
The month ahead: milder temperatures expected
Revised forecasts expect temperatures nearer seasonal normal levels to the end of 2018. Combined with high LNG send-out following a recent influx of LNG tankers to the UK, which is expected to continue in December, gas and power prices could drop further. Prices may be additionally weighed on by falling commodity prices. However, the upcoming OPEC group meeting on 6 December could see a resurgence in Brent crude oil prices as the group is set to discuss the potential for supply cuts in 2019, supporting gas prices.
