The market update
Movement in power and gas markets has been mixed in December, due to a very volatile wider energy complex (oil, carbon and gas markets) and waning liquidity. But despite the ups and downs, both commodities have lost ground since the end of November, with gas falling most notably.
Early December saw power continue to slide after a sharp drop in prices during the end of November. The main driver for this is the glut of gas available throughout the UK and Europe. Gas storage levels are at an all-time high, meaning that any cold-snaps (be they short or sustained) will be relatively easy to manage from a supply point of view. Asian markets are also experiencing an excess of supply, with mild temperatures reducing demand. A further contributor to high gas supply levels is Australia and USA joining an ever-growing list of countries exporting LNG (liquified natural gas) at a high rate.
The UK election result gave some assurance of an orderly Brexit, with the Conservative majority giving a higher chance of a deal with the EU. This has created a more secure demand for carbon certificates moving into 2020. The Pound increased sharply following the result as well – although a stronger Pound has mixed effects on power and gas. The UK is linked to the rest of Europe via interconnectors and shared marketplaces, so a strong Pound often results in a drop in price overall as continental buying interest reduces because they will get less power and gas for their Euro.
The USA and China finally agreed in principle the first phase of their trade deal – a huge boost to the global economy, which is strongly linked with energy demand. This has caused oil prices to skyrocket and will no doubt have impacted power and gas too.
The general election and USA/China relationship progress acted to break the downward trend and cause a – potentially – short-term steep upward movement in prices. Further dated power and gas prices regained much of the value they lost at the start of the month. However, the long-term trend remains bearish.