Ever since March, forward and prompt gas prices have been on a remarkable climb. Much of this has coincided with an equally unprecedented rise in the price of carbon. However, this week we have seen gas prices soar whilst carbon has only slightly increased.
This is due to a combination of an already tight supply, planned maintenance on crucial pipelines in July and Gazprom turning down the option to increase gas supply levels. Gas supplies in Europe have been below 5-year averages for almost the whole year now. This puts upward pressure on gas prices because it increases the chance that by next winter these supplies won’t have been sufficiently filled up. On top of this, there is a more severe gas situation in Asia driven by demand so gas prices are even higher. This means that LNG ships are skipping Europe and going to Asia instead, further reducing gas flow into Europe. This means that gas prices are already very sensitive and it only takes another blip in the supply chain to cause a price spike. This week, it came in the form of planned maintenance and therefore temporary closure on two crucial pipelines that transport gas into Europe. The Yamal pipeline will be closed for 5 days whilst Nord Stream 1 pipeline, will be closed for 13 days. Secondly, Gazprom had the option to increase short term supply in the Sudzha capacity auction, a monthly gas auction, but decided against it. This means they will have to withdraw from their own supplies and further tighten the gas situation in Europe and the UK. As mentioned in last week’s marketpulse, this is all occurring in the backdrop of the political challenge that is Nord Stream 2. This decision from Gazprom is another suggestion that they may be deliberately tightening the gas supply into Europe in order to push through the opening of Nord Stream 2.
This has correlated with another rise in what were already exceptionally high power prices. An increase of £7.20/MWh in the first four days of the week led to UK Baseload Winter – 21 reaching £98.00/MWh which is amazing news to our renewable energy customers on our Track and Trade PPA product.
At 7pm on Sunday 27 June, Elexon called for the immediate suspension of the EPEX intraday exchange due to a data saving process problem. This caused chaos for National Grid in terms of balancing the system because it meant that they could only use the Balancing Mechanism to try and balance the system.
On Monday 28 June, strong Day Ahead prices of up to £95/MWh on the extended peak product, due to continued low wind, meant that the majority of CCGT’s (85%) were already contracted on Physical Notification from 7:30 am. The remaining assets sat within the Balancing Mechanism at very high prices between £110 – 140/MWh. These assets continuously increased their offer price throughout the day, with system prices peaking at £200/MWh as a result.
On a light-hearted note, England played Germany in the EURO’s Round of 16, which created volatile demand use. During half time, demand shot up by 1GW as the nation put the kettle on to try and calm their nerves. As 20 million viewers were glued to the TV during the game, demand came out 2GW below National Grid forecasts.