The so called ‘Beast from the East’ has hit the UK this week with snow showers and icy winds. Naturally demand is on the incline for heating while temperatures are at their lowest in 25 years across the UK. But what does this mean for the wholesale gas and power markets?
Sub-zero temperatures are now forecasted to last until the end of the week, filtering into March. As a result of the slightly prolonged cold weather, UK gas and power prices have inclined as the gap between supply and demand had shortened incredibly. Not only has the recent cold blast from Russia influenced this, but the UK gas system is much more restrained now than it was only 12-18 months ago.
The closure of the UK’s largest offshore storage unit Rough has significantly reduced UK gas supply for winter months, and has changed the future of winter gas supply moving forwards. Traditionally, Rough has been able to provide the UK with 70% of gas throughout winter months. With the facility now withdrawing at steadily low levels, harsh winter weather and cold temperatures can have a detrimental impact on gas prices.
Meanwhile, there have been significant reductions in drilling activity at Europe’s largest gas field based in the Netherlands. The Dutch government reduced output and production activity at the Groningen gas field only recently as a result of increased seismic activity in the surrounding area.
Traders and analysts have warned that only a quick surge of LNG arrivals would cause a reduction or drop in gas price. This is fairly unrealistic as the UK has seen a drop in LNG imports over the last 18 months. In 2015 & 2016, the UK would receive on average around 6-8 LNG tankers per month. This has slowly dwindled to 2-3 tankers per month, again limiting UK gas supply significantly over the winter months.
*Sources: Energy Live News, BBC News, Reuters, Npower, EDF, Met Office.