Energy price update

Energy price update 2017 Q4: Winter forecast

With winter fast approaching, we look at challenges facing the gas market. Does the National Grid have enough capacity to keep the lights on?

National Grid increases capacity prediction

Relax. Yes, the lights will stay on this winter.

In fact the National Grid has forecast that its surplus electricity margin will be over 10% this winter. Nearly double the surplus of last winter.

Interestingly, they predict a fall in demand for gas this winter. This is because the availability of renewable energy means less gas is being used to generate electricity. As such they are confident there is ample gas coming through the system to meet demand.

The future of UK gas supply

The confident prediction by the National Grid is despite the current low levels of gas in storage. As mentioned in all quarterly updates this year, the Rough storage facility is closing. Npower are expecting the remaining stored gas at Rough to be released into the market this winter.

The UK is expected to increase its reliance on Liquefied Natural Gas (LNG). This is delivered by tankers from around the globe to our LNG terminals at Pembrokeshire and the Isle of Grain. Here, the liquid gas is stored in cryogenic tanks (temperature below -161C) and re-gasified as demand requires.

LNG will account for the majority of gas imported in the future. In fact, by 2030, it is estimated that the UK will import over 60% of its gas.

Will energy prices increase this winter?

Yes, we expect this to be the case. A weaker jet stream is expected to bring colder weather than usual across North West Europe.

There will be continued volatility in electricity prices especially. Coal generation is likely to be used to help balance the system when renewables aren’t producing enough. The current bullish trend in the coal market will push prices up.

However, as mentioned at the start of this article, the 10% capacity should help alleviate very large increases in electricity prices.

With recent increases in the price of oil, gas could well follow suit. So look out for an increase in the gas markets too.

 

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