Outlook for gas and power mixed
Short-term gas spikes are likely to be short lived as weather improves and LNG tankers are drawn to the UK by higher wholesale prices, bolstering supplies. However longer-term prices could stay high as traders remain concerned about the decline in UK domestic gas supplies and increased reliance on gas pipeline imports from the continent and LNG imports from around the world.
The UK’s most important gas storage site, Rough, is now just 7% full after extensive use during the recent cold weather. UK gas storage has been working flat out as a result of low LNG imports, and the country will have to seek more expensive imports to meet demand if the weather remains cool over April. It has been estimated that it is no-longer possible to fill up Rough fully before next autumn.
Power prices should fall as soon as warmer weather arrives, allowing low coal and carbon prices to drive down electricity. However there are still some lingering supply concerns.
RWE npower, Scottish Power and SSE are all planning on closing old coal and oil fired plant as a result of environmental legislation. Poor margins at gas-fired generators have led to the same companies mothballing gas-fired capacity. This could tighten electricity supplies over the medium-term leading to higher prices.
Catalyst Business Energy Market Brief April 2013 - Wholesale Electricity and Gas Prices