All wholesale power contracts rose in December while gas contracts experienced mixed movements.
Power contracts for delivery in the near-term rose in December. Day-ahead power increased for the first time in three months, up 2.6% to average £64.0/MWh. The contract rose as consumption levels picked up, while times of low wind output acted to support prices over the Christmas period with more expensive forms of generation being required to meet demand.
All seasonal power prices increased in December, gaining 3.1% on average to reverse the previous month’s decline. Summer 19 power went up 3.1% to average £57.7/MWh, hitting a 10-week high of £59.9/MWh on 19 December. Contracts were supported by soaring EU ETS carbon prices, which climbed 18.4% to average €22.6/t in December. EU ETS carbon prices are factored into the cost of power generation; however, there is uncertainty over the UK’s future carbon pricing policies post Brexit.
Day-ahead gas slid 0.1% to average 64.3p/th in December, as an influx of Liquified Natural Gas (LNG) imports across the month kept prices from rising. The contract fell to a 20-week low of 59.1p/th on 31 December, with low gas demand forecast for New Year’s Day. Most seasonal gas contracts increased in November, rising 1.1% on average, despite a decrease in Brent crude oil prices. Summer 19 gas rose 0.8% to average 57.0p/th, whilst winter 19 gas lost 0.3% to average 64.5p/th.
EU ETS nears fresh 10-year high as Brent crude tumbles
EU ETS carbon recovered in December, rising 18.4% to average €22.6/t. Prices started the month at €20.7/t and went as high as €25.5/t on 24 December. The lack of EUA auctions over Christmas, combined with the start of the Market Stability Reserve (MSR) in January 2019, supported EU ETS carbon prices across the month.
Brent crude oil prices dropped 12.2% to average $58.7/bl in December. Fears of an oversupplied market pressured within-day prices below $52.9/bl on 21 December, the lowest since September 2017. This was despite production cuts from OPEC that are planned to reduce global supply by 1.6mn bpd in 2019, as the US Energy Information Agency expects growing US shale production to offset the impacts.
API 2 coal prices lifted 0.4% to average $87.5/t in December. Coal rose to a five-week high of $89.8/t on 17 December but ended the month lower at $85.8/t as China banned seaborne coal imports from November, reducing global demand for the commodity.
The month-ahead: Lower temperatures offset by LNG, but higher oil and carbon prices expected
Revised forecasts expect temperatures well below seasonal normal levels at the start of 2019. Although this is expected to support near-term gas prices in January, several LNG tankers are scheduled to arrive in the UK and will help to limit any potential price spikes. Brent crude oil and EU ETS carbon are also expected to rise early in the year, with oil production cuts commencing, and the start of the MSR reducing EUA auction volumes. This will act to lift gas and power prices along the curve.