february/march 2014 - market summary minutes...summer 2016 (p/kwh) 4.965 winter 2016 (p/kwh) 5.500...

February/March 2014 - Market Summary

Review of Market Trends Report No. 02

Martin Rawlings

4/3/2014

Contents Macro Economics .................................................................................................................................... 2

European Gas Market NBP Price: 1.747 pence/kWh ............................................................................. 4

UK Electricity Market Buy Price: £42.40/MW ......................................................................................... 5

Coal Buy Price: $ 60.37/tonne ................................................................................................................ 7

Carbon Buy Price: €4.89/tonne .............................................................................................................. 7

News ....................................................................................................................................................... 8

UK Energy Markets Report

Macro Economics

GBP Closing Rate % Change

EUR 1.2059 2.36%

USD 1.6601 9.74%

United States Dollar GBP/USD was steady throughout much of the month of March. It dipped to a low of 1.6615 but quickly bounced thereafter in response to what seemed to be dovish comments from Fed Chair Yellen. Although she said nothing much new the dollar weakened as she added that their extraordinary commitment to QE and low interest rates was still needed and would be for some time. US data was also on the soft side – Chicago PMI printed weaker than expected at 55.9 vs. expectations for 59.2. It saw GBP/USD trade to a high of 1.6680 whilst it has steadied in Asia to open this the month of April at 1.6660. UK Manufacturing PMI and US ISM Manufacturing PMI will be the focus for markets in April. The UK numbers have been strong recently (although printing under forecasts) so investors will be looking to this release as having the potential to take cable through 1.67. Blizzard anticipate a range in the GBP/USD rate of 1.6590 to 1.6725

Euro It was a volatile time for the euro. European Flash CPI for March printed weaker than expected at 0.6% y/y. EUR/USD dipped to a low of 1.3745 but then jumped back higher as markets looked more closely at the numbers. The core inflation data was actually fairly positive and the weaker headline number was put down to a temporary fall in energy prices. Currency markets also witnessed quite a bit of month end euro buying and with the weak US data and dovish Fed tone EUR/USD pushed its way to a high of 1.3802. EUR/GBP also bounced on the month end demand and jumped to a high of .8295. The range has steadied in Asia and EUR/USD opens this morning at 1.3790. German


employment data has been released already and along with European manufacturing data, printed broadly in line with market expectations. Blizzard anticipates a range in the GBP/EUR rate of 1.2030 to 1.2130

Oil Market: Brent $107.44/bbl, WTI $101.58/bbl

Brent ICE (USD/b) 107.44

Gasoil ICE (USD/t) 895.75

Fuel 1% Fob cg (USD/t) 612.13

Brent prices were chaotic but finished on a zero gain session at month end and now hold steady around $107.7/b. WTI prices had almost the same move and the Brent/WTI spread remained therefore stable around -$6.3/b. Crude prices are still oscillating between stabilizing geopolitics, supply disruptions despite bearish global balance forecasts and uncertainties on economic outlooks (especially for China). Main events: Persistent weakness in China's manufacturing sector reinforced fears of a sharper-than-expected slowdown at the start of 2014: indeed, the official purchasing managing index (PMI) edged up to 50.3 in March from 50.2 in February, pointing to slight expansion, but the Market/HSBC Purchasing Managers' Index (PMI), which focuses more on the private sector, fell to an eight-month low of 48.0 in March (the index has been below the 50 level since January). The fear of Chinese economy slowdown remains clearly the main risk that could weigh on crude prices in 2014 from a demand point of view and many are now questioning the relevancy of official Chinese figures.

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In a gesture that could ease tension in the Ukrainian crisis, Russia pulled some troops back from near Ukraine's eastern frontier yesterday as president Putin said to Angela Merkel. Russian Prime Minister Medvedev was in Crimea yesterday in what looks like a normalization of the situation of the region. Russia also announced yesterday that Gazprom plans to build an undersea gas pipeline to Crimea with a capacity up to 2 bcm a year. Rebels in eastern Libya once again have been said to be close to reopening three oil ports they have occupied since the summer. The eastern militias are still asking Tripoli for more autonomy and a greater share of oil revenue and it is the second time they make such an announcement in four months but a breakthrough is possible given the dramatic current situation of the oil and gas complex in the country. Outlook: The Chinese data released overnight should weigh on crude prices at the start of April and markets operators will probably wait for ADP figures and the job report for US to assess global economic health and crude demand outlook. So Blizzard see more risks on the downside today for Brent prices with a first support at $107/b.

European Gas Market NBP Price: 1.747 pence/kWh

Day Ahead (p/therm) 51.20

May 2014 (p/therm) 51.27

Summer 2015 (p/therm) 56.70

Prices across the NBP lost value over the month's session on the expiry of the front season contract; though support was to be found on possible lower flows as summer’14 deliveries begin. The system was 5mcm long as the gas day began, with demand forecast around bolstered to month start level

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UK IPE GAS PRICE

Day Ahead Summer 12 Winter 12 Summer 13 Winter 13

Summer 14 Winter 14 Summer 15 Winter 15 Summer 16

Winter 16 Summer 17 Winter 17 Summer 18


on the back of storage injections. Langeled imports were higher, the nomination increasing from 64mcm as March opened to over 70mcm. This along with a drop in injections into Aldbrough helped negate the impact of rising LDZ consumption forecasts and a tick up in CCGT demand. Prompt prices reduced significantly during March, Day-ahead trading below 50p/therm at points as the long system and fresh LNG stocks boosted confidence in supplies. However some of this value had been regained, as the potential for Langeled and BBL imports to drop in line with the previous summer filtered through. The reductions carried on into the near curve, where strong sterling added pressure to contracts despite a wavering in value against the Euro following better than expected German retail sales data. The front season Summer'14 had shed over a penny by the close to expire at 51.30p/therm, the reduced requirement for injections into storage following the mild winter resulting in a discount of over 10p/therm from where the contract was prices at the beginning of 2014. The system is currently 17.6mcm short with demand forecast down from expected level at 220.5mcm. As predicted, Langeled imports have dropped significantly to just under 30mcm, with BBL imports down by 40% to 19mcm also, in what could potentially be a level for flows through the summer. The drop in demand forecast together with an increase in the levels of LNG send outs are adding some length to the system, but the shorter supply position together with storage injections and exports of 9mcm are leaving the NBP under supplied. Prices have overall opened higher, though the tight supply situation and the adjustment following the expiry of several contracts is leading to incredibly volatile trading.

UK Electricity Market Buy Price: £42.40/MW

Day Ahead (p/kWh) 4.240

Week 15 2014 (p/kWh) 4.130

May 14 (p/kWh) 4.125

June 14 (p/kWh) 4.190

Q3 2014 (p/kWh) 4.130

Winter 2014 (p/kWh) 4.990

Summer 2015 (p/kWh) 4.910


Summer 2016 (p/kWh) 4.965


Prices on the near curve have stayed relatively flat to the close in March’s session, despite some early weakness on their equivalent contracts on the gas market. The front month power contract has hovered just above its previous settlement of £40.42/MWh for the majority of the session and is currently offered at £40.57/MWh. Prices on the far curve have followed suit, shrugging off bearish sentiment from the NBP and additional pressure from the softer fuels markets. The Winter 14 is currently offered at £49/MWh, just 13p/MWh above its previous assessment. Despite a drop in wind generation output forecasted for this week, the Day Ahead contract has actually shed value session-on-session. These losses have been attributed to the drop in demand, as big industries wind down for the weekend.


Bearish sentiment gripped the UK wholesale electricity market in yesterday’s session, with softer prices on the wider fuels markets fuelling sharp losses on the far curve in particular. The front month Brent crude contract came tumbling off yesterday, following the news that Libya was on course to resume full oil production operations after a prolonged period of restrictions due to the civil unrest in the country. Further pressure was applied by the weaker European coal market, as prices were sold down as the market prepared for a glut of coal shipments from Colombia after an extended period of supply disruptions. The front season power contract closed the session almost £1/MWh as a result of these factors, finally settling at £48.87/MWh. Strong wind generation output combined with the warm weather forecasted for the remainder of the week weighed heavily on the prompt. Further downwards pressure from the well supplied gas system helped the Day Ahead shed £2.00/MWh from its previous settlement assessment, closing at £40.30/MWh.

APX Power UK Spot Value Change

Base 22,975.40 MWh

43.79 £/MWh

-18.1%

- 5.5%

Industrial Peak 10,068 MWh

47.10 £/MWh

-5%

-6.6%

Total

1241, Trades

-0.5%

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UK OTC POWER PRICE MOVEMENTS

Day Ahead Summer 2014 Winter 2014 Summer 2015

Winter 2015 Summer 2016 Winter 2016 Summer 2017


Coal Buy Price: $ 60.37/tonne

Units May 14 Q3 14 Q4 14 Q1 15 Q2 15

Coal API 2 USD/MT 76.50 76.40 78.08 79.38 80.35

Coal API 4 USD/MT 72.45 73.10 74.11 75.46 76.45

Carbon Buy Price: €4.89/tonne


News

Six big questions that the British energy industry must answer: This is the biggest investigation of the British energy markets since privatisation and deregulation began in the 1980s. But the inquiry, triggered last week by a trio of watchdogs led by Ofgem and to be undertaken by the new Competition and Markets Authority (CMA) immediately sparked dire warnings that goes to the heart of Britain's energy policy paralysis. British Gas owner Centrica and a raft of analysts said a probe that could last two years will freeze investment in much-needed power stations and make blackouts more likely. Ofgem and energy and climate change secretary Ed Davey countered that a proper and full investigation would clear the air and rebuild trust among consumers. But it will take more than a competition probe to restore faith in British energy policy. There are six questions the energy industry needs to answer as it tackles the wider issue of how Britain can modernise and decarbonise its power industry without pushing up prices and driving vast numbers of people into fuel poverty. ----------------- U.K. Gas Posts Longest Losing Streak Since 2008 on Warm Weather: U.K. natural gas for day-ahead delivery fell for a ninth day in the longest losing streak since November 2008 as an outlook for warmer weather cut demand for the fuel used in heating. The contract declined as much as 1.3 percent

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Britain Confronts Gas Mother Lode With Fracking by Lord Browne: The man the protesters call “the fracking czar” is seated in a solarium-like conference room overlooking the rooftops of Mayfair in central London. John Browne, a former chief executive officer of oil giant BP Plc (BP), is clad in a crisp, white dress shirt, enameled cuff links, a royal-blue necktie and dark trousers. Browne, an independent member of the House of Lords and a nonexecutive director in the U.K. government’s Cabinet Office, is lamenting how the protests may slow his efforts to bring America’s shale boom to Britain. Browne says fracking would secure a new domestic energy source, create thousands of jobs, generate billions of pounds in tax revenue and be a far cheaper alternative than constructing nuclear plants. -----------------

Brent Crude’s Premium to WTI Near Six-Month Low Amid Libya Talks: Brent crude’s premium to West Texas Intermediate traded near its lowest level in six months as Libyan rebels made a conditional offer to reopen oil ports in the east of the country within days. The Brent-WTI spread contracted to less than $5 a barrel yesterday for the first time since October. Libyan rebels are ready to open oil ports within 48 hours, Sliman Qajam, a member of the country’s parliamentary energy committee, said today by phone from Tripoli. The self-declared Executive Office for Libya’s Barqa, or Cyrenaica region, has agreed to open the 200,000 barrel-a-day Zueitina terminal as a “goodwill gesture” following the release of captured rebels, said parliament member Al-Sharif Al-Wafi. -----------------

Clegg blocks Cameron's plan for wind farm cap: Nick Clegg has blocked a proposal by David Cameron to restrict the construction of onshore windfarms, a Liberal Democrat source has said. It is understood the prime minister presented Clegg with the plans more than a week ago, which would have put an overall cap on the number of turbines built in the countryside. However, the deputy prime minister told Cameron on Monday that he would not allow a further assault on onshore windfarms after previous cuts to subsidies for the industry. -----------------

UK's last deep pit coal mines hit by closure threat: Two of Britain's three remaining deep pit coal mines face closure in the next 18 months with the loss of more than 1,300 jobs under plans announced by the country's largest coal producer. UK Coal is consulting on plans to shut Kellingley in Yorkshire, which employs 700 people, and Thoresby in Nottinghamshire, which employs 600. It will leave employee-owned Hatfield colliery in South Yorkshire as Britain's last remaining deep pit mine. -----------------


Terminology • All oil prices: in US dollar • Oil product: Brent crude or West Texas Intermediary (WTI) • Mb/d – Million Barrels per day. • Freight rates: US dollar per tonne.

Natural gas prices quoted as pence per therm.

Power prices quoted as Pounds Sterling per MWh. • CO2 market: EURO Information & Data Sources

1. APX UK 2. Total Gas & Power 3. GdF Suez 4. European Energy Exchange (EEX) 5. Coal spot.com 6. European Carbon Futures 7. FT

Disclaimer This material is intended for information purposes only. It does not constitute an independent investment research, a personal recommendation or other general recommendation relating to transactions in financial instruments or an investment advice. This material is intended for general distribution, it does not take into account any specific investment objectives, financial situation or particular needs of any recipient. It cannot be transmitted to any other person without the prior written consent of Blizzard Utilities Limited. The information contained herein, including any expression of opinion, is not intended to constitute an offer or a solicitation to buy or sell any financial instruments, products or services, an investment research or an investment recommendation or other financial, investment, legal, tax or accounting advice or any other advice. Further, all information contained herein has been obtained from and/or is based upon sources believed to be reliable is deemed to be clear, fair and not misleading but cannot be guaranteed as to accuracy or completeness. The views and opinions, forecasts, assumptions, estimates and target prices reflected in this material are as of the date indicated and are subject to change at any time without prior notice. The figures that may refer to past performance herein are in no instance an indication of future valuations or future performance. Blizzard Utilities Limited is under no obligation to disclose or to take account of this document when advising or dealing with or for its customers. Blizzard Utilities Limited nor any of its affiliates, directors, employees, agents or advisers nor any other person accept any liability to anyone for any direct, indirect, special, incidental, consequential, punitive or exemplary damages (including, but not limited to, lost profits) arising from the use and dissemination of this material or the information contained herein.


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Tel. 0845 873 7950

Email. [email protected] URL. www.blizzardutilities.com

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february/march 2014 - market summary minutes...summer 2016 (p/kwh) 4.965 winter 2016 (p/kwh) 5.500...

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