Market stays strong despite freezing temperatures
Gas prices continued to decline on Tuesday, pressured by robust supply fundamentals despite freezing temperatures.
The vast majority of contracts saw a continuation of the bearish trend established across the previous two sessions, with losses of circa 0.07p/kWh posted across the near-curve when compared to their previous close.
The continuation of strong LNG send out, steady UK and Norwegian flows and above average storage levels all combined to strengthen confidence in the supply and demand dynamic, as we move deeper into the second European winter without major Russian pipeline supplies.
On the storage front, the latest data from Gas Infrastructure Europe shows that continental facilities are 97% full, which is 3.5 percentage points higher than the same date last year.
Our latest demand forecast model shows little change with demand still expected to remain well-above seasonal norms across the next two weeks, as freezing temperatures continue to grip most of Europe.
In other news, the European Commission proposed yesterday that emergency measures introduced last year following Russia’s invasion of Ukraine should be extended by another 12 months, this includes the Market Correction Mechanism, an instrument designed to artificially limit energy prices in the event of excessive price spikes.
Day ahead contracts continue to head south this morning, with the front-month and season contracts currently being offered circa 0.03p/kWh below their previous settlement at time of writing.
As the temperatures drop the UK is now consuming more gas and electricity. If we check the latest half hourly period at the time of writing (10:00 – 10.30), electricity demand in the UK has increased to 40.83 GW’s. 56.48% (24.19 GW’s) is being generated from gas at the moment with wind turbines only contributing 3.15 GW’s (7.36%) of the total generation mix.
With little or no wind generation in the UK currently, the strong gas supply fundamentals will need to persist for the wholesale market to not react.
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