This winter, even more so than normal, there were many uncertainties ahead. Weather, LNG supply, Brexit and COVID-19 were at the forefront of the market, and they certainly haven’t disappointed with high volatility seen over the past few months.
So, what have we seen so far and what are the risks ahead?
Firstly, with La Nina bringing prolonged cold weather to Asia and supply disruption hindering Australian exports, the LNG market has been particularly tight. The spot Asian LNG price peaked at c.290p/th (3.5x higher than UK) as buyers scrambled to attract cargoes amid fears storage would run dry. Consequently, LNG supply has been diverted away Europe and towards Asia.
Gas prices rocketed in Europe due to the tight LNG supply market along with cold weather. The UK February 2021 contract reached over 83p/th on 12 January, a rise of almost 100% since the start of winter.
Another contribution to the bullishness of the market is carbon prices. EUA prices to break through key resistance levels and set new all-time highs, caused by a 2030 emissions reduction target from the EU, combined with cold weather and a long pause in auctions.
On Thursday 14 January tight power margins in the UK pushed day-ahead baseload and peakload contracts to new record highs, at £195/MWh and £350/MWh respectively.
There are still many uncertainties, despite that fact that risks have eased in both Europe and Asia recently, along with a milder weather outlook. LNG supply continues to be limited due to the Asian price premium, whilst a Sudden Stratospheric Warming (SSW) event could bring colder weather to Europe in February. The market is likely to be sensitive to any changing fundamentals.
These points only scratch the surface of the market drivers this winter, so I’m sure you’re wondering how you can stay on top of the wholesale energy price as it changes, especially in uncertain times like these?
Energy is a complex business, but hopefully we can make it simpler. You can keep informed on the changing prices through us at EDF. Join our free bi-monthly webinars on the UK Power Market with James Chaplin, Power & Gas Trader in the Portfolio Hedging team.
The next one is coming soon, on 4 February 2021 at 3pm. Don’t miss out! Sign up here.
In the meantime, watch James run through the factors that influence the wholesale price of power – what they are, how they work, and what to look for – in more detail.