Energy Market Risk Analysis – mid March 2012

Prices edge up; more plants to close

UK Annual electricity prices have risen slightly over the last fortnight, with April ’12 Annual breaking above £50/MWh and October ’12 Annual above £53/MWh again, on the back of fresh gas and oil price rises – amid a mix of supply anxiety and improving economic optimism.

Oil prices have risen largely on the back of signs of economic recovery in the US and continuing Iranian tensions, although over the last few days some of the upwards steam has been sapped by talk of the US and Britain releasing strategic oil reserves and a strengthening dollar.

Gas prices have followed suit, also boosted by a perception of a tightening global LNG market, which is seen as potentially squeezing UK gas supply later in the year.

The price of the coal is unchanged from two weeks ago, with 2013 product still valued just above $113/tonne. Short-term coal prices have reportedly reached a 19-month low, in the face of a continuing excess of supply.

Continental power prices are marginally weaker, reports of record levels of solar electricity output in Germany contributing to the softening.

Gas prices across the near and longer term markets have risen again, although they are still off from where they were at the end of February. Forward seasons and Annuals have been strengthened by oil prices reaching an 11-month high, while shorter term values have been lifted by strong gas injections into storage.

Changeable temperatures have had some effect on demand and prices, although sporadic bursts of balmy weather have not led to any significant price drops. Continental demand appears to have increased on the back of storage replenishment, but also on the back of lower than expected Russian gas flows into Germany.

Oil prices have been helped higher by positive economic news from the US and Germany as well as the ongoing Middle-East tensions.

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Energy price shift between 04 March 2012 and 15 March 2012

Elec: +0.76%

Gas: +1 %

Coal: -0.22%

Oil: -1.9%
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