Day-ahead gas prices momentarily traded over £2.50 p/th this afternoon. (7th December, 5pm).
The market driven higher amid reports of surge-buying by power generators, electro-intensive industrials and concerns about an imminent Russian incursion into Ukraine as well as US sanctions or other action affecting exports all coming to a head at once.
Consequently the Over The Counter (O.T.C.) market saw risk-premiums ratchet up along the curve. There had been some rest-bite for gas, conferred by a comparatively tame oil market.
The prompt market meanwhile was jolted by warnings late yesterday by French nuclear operator, EDF over anticipated performance of its reactors over the coming months. Readers of issues of Energy Highlights over the past 7 years will recall periodic references to the problem of France’s ageing nuclear fleet, currently supplying a mammoth 60 GW across Europe. Not only are nearly all 56 of France’s reactors of identical design, many were also built at roughly the same time during or close to the decade of the 1980s. Most of them are now operating at or – in most cases – beyond their original design lives. With a far greater propensity now for things to go wrong or for preclusive reactor closures, shutdowns or emergency maintenance to shut supply unexpectedly. Amid the market turmoil elsewhere, it is not hard to see how warnings concerning reactor-availability by the operator itself will have rattled the O.T.C. market in the way that they have.
January is trading well north of £300/MWh as we go to the wire – a far cry from the “£70/MWh to £90/MWh” price range for the Q4 or Q1 periods, to which perhaps too many traders had grown accustomed.
From a pure mark-to-market perspective, selling electricity to retail or commercial customers at current commodity prices must rack up significant losses per customer, possibly excess of 15 p/kWh once operating expenses, inflation-indexed network charges and non-recoverable taxes & green levies are added to the commodity prices prevailing on the O.T.C. We will just have to wait and see how demand evolves, regional renewable power generation performs and geo-political events unfold as we move deeper into winter.
A late January update will follow. We anticipate much change between now and then.
Update – 8th Dec, 11.30am.
The curve continued climbing this morning; April Year gas and power contracts are up another 10% with no obvious resistance level in sight.
About the Author
Dominic Whittome is an economist with 25 years of commercial experience in oil & gas exploration, power generation, business development and supply & trading. Dominic has served as an analyst, contract negotiator and Head of Trading with four energy majors (Statoil, Mobil, ENI and EDF). As a consultant, Dominic has also advised government clients (including the UK Treasury, Met Office and Consumer Focus) and private entities on a range of energy origination, strategy and trading issues.
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