May 2011

The bears have tightened their grip over the sliding gas and power prices, with May seeing a continuation of April’s trend.

·         Gas has avoided any significant changes, seeing a week on week loss of only 0.83%, it seemed as though it decided it deserved a holiday (like the rest of us) and stayed pretty flat.

·         We have been lucky to have had plenty of sunshine and long bank holiday weekends this month, (Thanks Will and Kate!) all factors which have aided in bearish market prices due to lower industrial demand and warmer temperatures.

·         The UK has seen an influx of LNG cargo’s, which have more than offset the shortfall in Norwegian flows resulting from supply niggles at the Kollsnes plant due to maintenance and the Langeled pipeline struggling to reach 20 mcm for the majority of the last fortnight.

·         A heavy sell off in Crude oil and a 31% sell off in silver last week increased volatility in the commodity markets and triggered a downturn in gas and power prices.

·         Oil prices have been extremely volatile (producing graphs that don’t look dissimilar to the Himalaya mountain range) but have ultimately traded sideways. This has been on numerous factors

o   Many market participants are erring toward a downturn in prices as US demand looks weak.

o   Eurozone debt remains a major concern. A slowdown in economic recovery has pulled both oil and stock prices lower. This comes as the Eurozone minister approves a 78 billion euro bailout for Portugal.

Electricity and Gas month ahead prices

April Update

UK gas and power markets have been volatile over the past month, we saw a steep climb in prices followed by significant downward movement, perhaps due in large to some of the following bearish fundamentals;

·         The latest sizeable aftershock in Japan had little effect on markets, UK LNG deliveries were originally thought to be impacted by Qatar’s promise to send out an additional 60 LNG cargoes to Japan. However UK supplies have remained healthy and well supplied, with a minimum of 5 cargoes due to dock in the UK between the 19^th and 25^th of April.

·         UK supply levels are more than two and a half times the levels seen in 2010. Increased LNG deliveries and strong gas flows have enabled high storage injections and resulted in a comfortable system.

·         Scorching hot weather (for the UK anyway) has resulted in lower demand and increased ice cream sales. Combined with healthy flows the lower demand has ensured the gas system has been more or less consistently long despite high storage injections and Interconnector exports.

·         Brent Crude oil reversed some of its gains after touching a two year record. Increased stock piles and refinery maintenance in Europe coming to an end combined with concerns over weak economic recovery have put downward pressure on prices.

...and adding a floor to the falling prices

·         Uncertainty over the escalating turmoil in the Far East and North Africa leaves many traders and market participants feeling uneasy over what direction the market may take. If the political unrest spreads, large oil exporting nations could become affected which in turn would affect oil exports to the rest of the world.

Gas and Electricity Month-ahead prices

UK gas and electricity markets

It’s been a hectic fortnight for the UK gas and electricity markets. Global drivers are setting the standards for the rising prices as the unrest in Libya continues and the earthquake and tsunami in Japan have rocked economic sentiment. Japan is the world’s third largest electricity consumer; it has 54 nuclear reactors which supply 30% of the countries entire generation needs. Japan is now almost entirely dependent on LNG to meet demand and has over 40 terminals across the country. Qatargas has confirmed that they will provide all the LNG needed to meet Japanese requirements, which could potentially be the majority of spot cargos.

The political rows in Libya caused oil prices to rocket to 29 month highs following fears that oil supply from the Middle East could be cut off to Western Europe. Oil has recently retreated from its recent highs. This coincides with expectations that demand from Japan, the world’s third largest economy, is to drop for a substantial amount of time. The downward pressure from reduced demand has been alleviated by unrest in Bahrain as anti government demonstrations took place. However the concern over Saudi Arabia’s day of rage fell flat as activists were deterred over fears that Islamic radicals would take over the protests.

Coal has firmed significantly, currently at around $128 a tonne for April. This is due to the German chancellor Angela Merkel announcing that Germany will be closing all pre 1980 built nuclear power stations for three months pending health and safety assessments. This will leave a large gap of 7.4 GW in German generation which will have to be filled by coal plant generation