2. alfaenergy
www.alfaenergygroup.com
Page 2
UK Gas & Power Review
The summer gas season ended last week and with it expiry of the
Winter 2016 and Q4-16 contracts. UK gas and power curves both
traded higher last week as the bulls came out on top for the third week
running. Gas price traded higher on expectations of an increase in
demand from power generators as well as the weak outlook for LNG
deliveries to UK terminals and current low sendout. The power curve
saw strong upside of around 10% after nuclear availability in France
was revised lower with EDF announcing an extension to the current
outages and further testing on numerous other reactors.
CoaltradedatitshighestpricesinceMarch2015.Thegainsweredriven
by China, whose effort to prop up the market by cutting production
has seen coal become the best performing commodity to date in
2016. OPEC finally managed to loosely agree on a production cut of
around 1 million barrels per day. This won’t be finalised until the next
OPEC meeting in November. Prices still rallied by 6%, and Brent now
trades above $50. Carbon followed the bullish sentiment in oil and
coal and the potential increased coal-fired power generation over
the coming months. Sterling is trading at three-month lows against
many currencies after Theresa May announced Article 50 will be
triggered by the end of March 2017.
Written By - Wayne Bryan
Chart Represents - Key power contracts
Chart Represents - Sterling V Dollar & Euro
€ 4.40
€ 4.50
€ 4.60
€ 4.70
€ 4.80
€ 4.90
€ 5.00
€ 5.10
$44
$48
$52
$56
$60
$64
26/09/2016 27/09/2016 28/09/2016 29/09/2016 30/09/2016
Oil $ Coal $ Carbon €
32
34
36
38
40
42
44
26/09/2016 27/09/2016 28/09/2016 29/09/2016 30/09/2016
Price(p/therm)
DA Month Ahead Q-4 W-16 Oct Year
£36
£38
£40
£42
£44
£46
£48
£50
£52
£54
26/09/2016 27/09/2016 28/09/2016 29/09/2016 30/09/2016
Price(£/Mwh)
DA Month Ahead Q-4 W-16 Oct Year
€ 1.14
€ 1.15
€ 1.15
€ 1.16
€ 1.16
€ 1.17
$1.29
$1.30
$1.30
$1.31
$1.31
$1.32
$1.32
26/09/2016 27/09/2016 28/09/2016 29/09/2016 30/09/2016
£ v $ £ v €
Chart Represents - Major Fuels
Chart Represents - Key Gas Contracts
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UK Supply and Demand Dynamics
Demand from industry and the power sector remained fairly stable while domestic demand ticked up by around 15% as temperatures
lowered. Langeled flows were intermittent last week as numerous outages saw gas deliveries range from 11-28mcm. Flows ramped up
Friday ahead of the start of the new gas year, and flows of 50+mcm are expected this week. The BBL line finally delivered some volume
after being dormant for the majority of the summer. Flows are expected daily now we are in winter season. LNG sendout started brightly
but faded due to a lack of ships on the horizon. Weather models predict a warmer than average start to October.
5%
28%
50%
13%
4%
Coal
Nuclear
CCGT
Wind
Other
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
26/09/2016 27/09/2016 28/09/2016 29/09/2016 30/09/2016
Industry Gas for Power Domestic Demand
Chart Represents -
UK power mix
10
11
12
13
14
03/10/2016 05/10/2016 07/10/2016
10-90% 25-75%
Prev EC Monthly Seasonal Norm
0
10
20
30
40
50
60
26/09/2016 27/09/2016 28/09/2016 29/09/2016 30/09/2016
Langeled LNG BBL
Written By - Wayne Bryan
Chart Represents - UK Demand
Chart Represents - UK Imports Chart Represents - Weather outlook
4. alfaenergy
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Page 4
Leading European Gas and Power Markets
Sentiment in the European power market was positively bullish last week.
European forward power prices hit their highest levels in over a year as
news of tightening French nuclear supply spooked buyers. French state-
controlled utility EDF said it would extend testing on 12 nuclear reactors
during their planned outages in the coming months, which is likely to
affect the length of the outage period for some of the reactors. French
nuclear reactors provide 75% of their electricity supply, hence the
upside observed, which resulted in contagion across European energy
markets. Nuclear-dependant Belgium also has issues, and they are only
exacerbating the risk for the coming months. Bullishness in coal and
carbon extended the gains especially with markets expecting more
coal-fired generation and the resultant need for additional Carbon
Permits. European gas also rose with those markets too expecting
an uptick in gas-for-power generation. However, this market is well-
supplied with storage way above the five-year average.
Written By - Wayne Bryan
Chart Represents - Key EU power contracts
Chart Represents - Gas Storage % Chart Represents - French Power Demand & Fuel mix
€12
€13
€13
€14
€14
€15
€15
€16
€16
26/09/2016 27/09/2016 28/09/2016 29/09/2016 30/09/2016
€/Mwh
German Cal-17 TTF Cal-17 German Front Month German DA Dutch Front month Dutch DA
€23
€25
€27
€29
€31
€33
€35
€37
€39
€41
€43
€45
26/09/2016 27/09/2016 28/09/2016 29/09/2016 30/09/2016
€/MWh
German Cal-17 French Cal-17 German Front Month German DA French Front month French DA
44000
544000
1044000
1544000
2044000
2544000
3044000
3544000
4044000
4544000
5044000
25000
1025000
2025000
3025000
4025000
26/09/2016 27/09/2016 28/09/2016 29/09/2016 30/09/2016
GW's
GW's
oil Coal Gas Nuclear Wind Solar Hydro Biomass Exports Demand
72
77
82
87
92
97
26/09/2016 27/09/2016 28/09/2016 29/09/2016 30/09/2016
BEL DEU DK ESP FRA ITA NLD POL UK
Chart Represents - Key EU Gas contracts
5. alfaenergy
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Page 5
The outlook for this week is moderately bullish in both gas and power,
with markets seemingly in risk-off mode as the recent upside has taken
many contracts above 12-month highs and current fundamentals are
not that supportive. Starting with supply, the lack of LNG on the horizon
is unsettling for a market that was expecting a glut of LNG this winter.
September saw a recent high of nine cargoes with expectation of more
in October, but these hopes have been dashed by an earthquake
in South Korea that caused four nuclear plants to be shut for safety
reasons. Maintenance in the US and Qatar coupled with supply issues
from Australia and sustained demand from India have dampened
expectations for the time being. Increased supply from Norway is
welcome and necessary, and deliveries to
the UK are already up 180% from Friday’s
levels to 61mcm. A sustained sendout above
50mcm is needed as is gas from BBL, which
is now flowing after a three-month summer
hiatus. UKCS production is also improving with
some outages ending. All planned outages
should be complete in the next three weeks.
Wind and solar forecasts look promising for
Outlook
the week ahead as does UK nuclear availability which is desirable in
light of the current tightness in the power market in not only the UK
but across Europe. Demand from the residential sector is ramping up,
+15% last week, mornings will be colder and as such heating demand
is forecast to rise by another 10-15% over the coming weeks.
Gas-for-power demand should remain robust. At present, 50% of our
power is and has been generated from gas for the past few months.
Power generated by coal ticked up to 5.5% last week with numerous
gas plants still offline for maintenance. It is a similar case in Europe,
and with coal prices still above $60 a tonne, this is a bullish factor.
UK gas and power products are also more
appealing to continental traders, due to the
demise of the pound, which is now trading
at three-year lows and is expected to remain
under pressure. With oil and coal all trading
in their upper ranges for the year, one could
expect some softening. Increased global oil
production (threat of US shale) and another
addition to the rig count Friday (+7) could see
crude soften a tad.
Written By - Wayne Bryan
“...the lack of LNG
on the horizon
is unsettling for
a market that
was expecting a
glut of LNG this
winter...”
“...mornings will
be colder and
as such heating
demand is
forecast to rise by
another 10-15%
over the coming
weeks. ...”
6. alfaenergy
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Page 6
and provinces already use carbon taxes or emission trading schemes,
but the OECD’s findings are that the cost of carbon is not high enough
to bring about the changes required.
A cap and trade scheme allows the trading of CO2 permits. Polluting
installations have a cap on their emissions levels but can purchase
permits from installations that have surplus emissions. The EU Emissions
Trading System (EU ETS) was the first large trading scheme and an
increasing number of regional schemes are now in operation, including
pilot schemes in seven provinces of China in the lead-up to the launch
of its national scheme due in 2017. However, to date, the EU ETS has
not reflected a meaningful price for carbon because an oversupply
of allowances has kept the price low. The front year is currently trading
at around €5.00/tCO2. The European Commission is seeking to address
the oversupply from 2019.
Many large firms are now using their own internal carbon pricing
structures, outside a regulatory regime, in order to incorporate a
carbon cost to decision-making processes. The pricing can be linked
to the existing or expected future price of carbon and helps to address
regulatory uncertainty. Businesses have often
called for a global carbon price, which would
set a level playing field, as well as long-term
pricing to aid investment decisions.
In the UK, regulatory uncertainty persists in
relation to carbon pricing, as the Brexit vote
raises questions over the UK’s continuing
participation in the EU ETS. An announcement
on the carbon price floor, a UK tax designed to
uplift the low cost of EU allowances, is due in the
Autumn budget this year.
The outcome of the 2015 climate negotiations in Paris is that carbon
pricing is increasingly being put in place across the globe. However, the
report from the OECD is now calling for the price to be at a level that
can bring about the required emissions reductions.
Written By - Nikki Wilson
Carbon Pricing: OECD Calls for Modest Collective Action
A report published by the OECD (Organisation for Economic Co-
operation and Development) last week concluded that carbon prices
are not high enough to bring about the emissions reductions required to
keep global warming to less than 2 degrees Celsius above pre-industrial
levels, as stipulated in the Paris Agreement. However, it concluded that
even modest collective action could bring about significant change.
As a means of measuring the average amount charged per tonne
of carbon, the OECD calculated an “effective carbon rate” (ECR),
comprised of energy taxes, carbon taxes, and the price of tradeable
emissions permits. The average ECR for six economic sectors across 41
countries was calculated to as €14.40/tCO2, significantly below the real
cost of climate change, which is considered to be at least €30/tCO2.
Rates varied across countries and sectors, with the highest occurring in
the transport sector.
Under the polluter pays principle, carbon taxes and charges mean that
the party responsible for producing the pollution is responsible for paying
forthedamagedonetothenaturalenvironment.Thistakesintoaccount
the cost of damage to crops or to property from flooding and rising sea
levels and healthcare costs as a result of heatwaves or drought.
A carbon price provides an economic signal so that the polluter can
decide whether to change their activity and reduce emissions because
it reduces their costs. It also encourages emissions reductions where
they are the cheapest. Approximately 40 countries and over 20 cities
“the report from
the OECD is
now calling for
the price to be
at a level that
can bring about
the required
emissions
reductions.”
7. About alfaenergy
In 1995, a group of like-minded individuals came together with a vision to
form an energy services company that would achieve growth by building
trusted and lasting relationships with its clients.
Their aim was not only to drive their clients energy costs down through
exceptional procurement services and energy management consultancy,
but to constantly add value by mediating between them and the intricate
supply chain in the energy industry.
With 4 international offices, more than 100 employees, and over 4,000 clients,
alfaenergy is now responsible for over £1 billion of annual spend on energy.
In recognition that our vision is being realised, we were named Broker of the
Year at the 2012 and 2014 Energy Awards as well as Consumer Champion at
the 2016 The Energy Live Consultancy Awards.
WE ENCOURAGE YOU TO CALL US TODAY
LET US MAKE A DIFFERENCE
United Kingdom
Alfa Energy LTD
1 Haven Green,
Ealing Broadway,
London, W5 2UU
T: +44 (0) 20 8810 7743
F: +44 (0) 20 8810 8080
F: +44 (0) 20 8043 0039
www.alfaenergygroup.com
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