Innovative Energy Consultancy Ltd
Innovative Energy Consultancy Ltd

Near-term power and gas rise with bullish commodities

Throughout December near term power and gas contracts experienced gains, with day-ahead gas reaching a four-year high, while its power equivalent hit a six-month high.

Day-ahead gas prices across the month leapt 12.8% to average 59.5p/th, extending upon the gains observed across November where prices averaged 52.8p/th. On 12 December prices hit a four-year high (78.0p/th), amid an explosion at the Baumgarten gas pipeline, coupled with an outage at the Forties pipeline which limited supplies. Seasonal contracts remained largely unchanged from the previous month, declining on average just 0.2%. The largest loss was observed in the summer 19 contract, which fell 1.5% to average 41.8p/th.

Average day-ahead power prices boosted 8.3% to £55.7/MWh. Prices reached a six-month high (£63.5/MWh) following major outages across Europe. Seasonal baseload power contracts experienced mixed movements during December, with contracts on averaging falling 0.2%. On 28 December, the winter 18 contract hit £50.5/MWh, a near three-year high.

Coal hits four-year high, oil and EU ETS carbon reach two-year highs

Brent crude oil prices lifted 1.5% to average $63.7/bl during December, up from $62.8/bl the previous month. On 29 December prices reached a fresh two-year high of $66.4/bl. Early price support was aided by tensions between Israel and Palestine. The Forties oil and gas pipeline outage on 12 December helped raise prices to new highs. Towards the end of the month, threats of mass strikes by Nigerian oil union Pengassan further lifted prices upwards.

API 2 coal prices lifted 3.6% to average $88.2/t in December. On 12 December prices reached $90.5/t, a fresh four-year high. Initial growth stemmed from increased demand as Europe entered the winter season. Weakening Chinese demand reversed price growth by the end of the month as China eased their gasification campaign efforts.

After six bullish months of growth EU ETS carbon prices declined 2.2% to average €7.4/t. Despite this bearish trend EU ETS carbon prices reached a two-year high of €8.2/t on 27 December.
Carbon prices started the month in a bullish mood driven by strengthening coal demand across Europe. Despite this continued demand for coal across the winter, weak auction results pegged back gains and depressed prices.

The month-ahead: Drax repairs and coal prices under pressure

Two 660MW biomass units at Drax are experiencing an outage and are in need of repair following a fire at the power station. This could act bullishly on power prices at times of system stress. However, its operator expects the units to be operational at some point in January.

API 2 coal prices are expected to be pressured into the first half of the new year with rising Chinese production, coupled with increased output from Russia, Colombia and Australia.

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