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Energy market report April 2018

The story of March and late winter in general was the unseasonable cold spell right at the beginning of the month, dubbed “the beast from the east” by the media.

This was a vast mass of cold air originating in Siberia which crossed the European continent to reach the UK, driving national demand to its highest daily level in more than 7 years.

The late winter timing of this event meant that European storage facilities were already fairly depleted, and the nature of the cold impacting nearly the entirety of Europe meant that UK spot prices needed to rise sharply to pull increased flows from the European interconnectors and Norway.

Extreme cold conditions resulted in unplanned outages which drove a gas deficit warning and within-day system prices reaching unprecedented levels of nearly £5/th as National Grid sought to keep the system within operating ranges.

Following the weather event prompt prices generally returned to previous levels of low-mid 50’s with the exception of the period of a second cold spell in mid-month.

In the Futures market, front month April traded up 4% while the front season contract Winter-18 traded up over 6% to end the month at its highest levels since January 17.

The power market saw similar similar bullishness through the month with front month gaining 6% and Winter-18 gaining 7%.

Since mid-March the UK has seen a big upswing in LNG shipments as Asian winter demand which dominated the global market through winter rolls off, making European hub prices more attractive to spot sellers. The UK has nearly received as many shipments from mid-March to mid-April as it did during the entirety of October – February. This, in combination with warmer than normal temperatures, has helped to push prompt prices back below 50p/th.

Moving into the summer months, demand could be higher than normal across Europe as storage operators seek to replenish stocks from record low levels. With planned outage season just around the corner, summer forward prices remain well supported.

Gillian Thompson