July was fraught with outages causing supply restrictions and economic developments putting UK energy prices through a tumultuous period.
Early in the month we began to see gas exports to the Continent increase via the IUK interconnector. Exports progressively ramped up to Belgium throughout the month, eventually reaching highs of 57 mcm/d, nearing maximum capacity. This led to tightness in the gas system, that was exacerbated by a series of unplanned Norwegian outages restricting output from the Asgard and Gullfaks fields which feed gas to the UK through the Langeled gas line. Strong LNG withdrawals from South Hook to clear space for impending arrivals helped ease the system; July was expected to be awash with LNG.
The GB pound continued to fall following from the EU referendum vote as the Bank of England Governor, Mark Carney, released £150bn of lending by easing banking regulations. Weakness on the oil market limited bullish pressures with heightened concerns regarding Chinese economic slowdown.
Pipeline imports improved as the month progressed, putting bearish pressure on gas contracts which managed to outweigh bullishness from persistently high IUK exports. A large proportion of gas-fired power in the UK energy mix meant power contracts followed their gas counterparts. This bearishness fed through to the curve, helped by a recovery of the GB pound after the Bank of England announced its decision to keep interest rates at 0.5% and the appointment of Theresa May as the new British Prime Minister.
The price falls were short lived however, as Centrica stated that the UK’s largest gas storage structure, the Rough formation, would extend its outage until March/April 2017. This saw marked gains on the far curve, especially the Winter-16 contract.
The later part of the month saw further outages in Norwegian and UK infrastructure causing severe tightening of the system. High demand for gas from the power sector due to outages among alternative-fuel powered stations intensified the deficit. Further weakening of the GB pound occurred after the release of poor UK economic data indicated the possibility that the Bank of England might implement measures to boost the UK’s lagging economy in August. However, late month weakness in crude oil caused by concern surrounding a persistent global oversupply pulled prices down.