Energy Market Risk Analysis | Late July 2014

Further falls, then a mid-month rally

After further bearishness during the first half of July, UK power and gas prices witnessed a mid-month rally ─ prompted by a flare-up in Russia-Ukraine tensions and an unrelated but unexpected tightening of physical gas supplies. Values across all UK power periods from Month-ahead onwards yanked higher, and despite some chipping lower since then they remain generally strong.
Two-way attacks across the Russian-Ukrainian border, one of which appears to have resulted in the first death on Russian soil since the crisis/conflict began, have ramped up the rhetoric between the two sides, increasing the perceived threat of war and the threat to European gas supplies.


Prices rise on supply tightness

While prices have continued to drop across all periods for most of the last fortnight, they were driven higher mid-month as a couple of unscheduled outages choked supply at the same time as cross–border clashes between Russia and Ukraine stoked new fears of war.
Day-ahead prices rose 9%, from 34.5 to 37.5 p/th, as a result,   while Winter ’14 prices rose more than 3%, from 55 p/th to almost 57 p/th. Levels remain high, even though supplies have now improved.

The outages happened at one gas terminal at St. Fergus – reducing flows from there there to zero, and at Norway’s Åsgard field – which saw production drop by as much as 23 mcm/day. At the same time imports through the Holland-UK interconnector also plummeted to negligible levels for two days.


The previous market risk analysis for Early July

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Energy price shift between 01 July 2014 and 16 July 2014

Elec: +0.18%

Gas: +0.18%

Coal: -1.03%

Oil: -4.84%
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