Gas markets have continued on a downward trajectory through February primarily due to a healthy supply picture across Europe and the UK.
By the end of the month, EU gas storage stood at 62% compared to a 5-year average of 41%, with some analysts stating that Northwest Europe, Austria and Italy could have a full capacity of gas storage (for next Winter) by mid-September.
Any price volatility experienced throughout February is generally related to forecasts of lower temperatures in the coming weeks and the impact this may have on gas demand. Supply outages have been minimal and Norwegian gas flows remain strong to the UK.
LNG is also boosting the level of gas supply across UK and Europe, with the Freeport Plant in Texas now moving towards full operations after the fire at the facility last year. However, there is some caution as LNG deliveries to Europe were reduced last week to 1.5 million tons compared to 2.5 million tons in the week prior.
Electricity markets remain strongly aligned with their gas counterparts at present, however, the steep trajectory has not been quite as significant due to several factors supporting the electricity price.
Despite brief periods of high wind strength, renewable generation has averaged between 25-30% of February’s electricity mix, increasing the dependence on more expensive gas CCGT generation. Additional imports from Europe have also been required to meet demand, with around 13% of the UK’s electricity consumption being supplied via interconnectors from France, Norway and the Netherlands.
With energy and carbon legislative deadlines occurring mid-month, both EU and UK Emission Trading Schemes saw their carbon prices rebound throughout February – increasing almost 30% on January’s close, providing further support to electricity prices.
The end of the month saw electricity demand forward forecasts reduce and also the growth of wind generation forecasts as we move into March.
Brent Crude prices are at $85/bbl despite lower Chinese growth targets and growing US inventories, with the potential for European interest rate hikes continuing to influence markets.
