June proved a very interesting and highly volatile month for the UK energy market with a large number of outages at various facilities, both British and Norwegian, and the revelation that the UK has voted to leave the European Union.
The month started off with a spate of outages to both Norwegian and domestic infrastructure. Tight supply margins pushed up prompt prices with maintenance at the Teesside gas processing plant and at the St. Fergus terminal hampering UKCS deliveries.
Power markets were also hit by outages striking the Heysham 2 nuclear site. Gains on the prompt filtered to the curve, although the majority of gains were attributed to a shift in currency. Power contracts were subjected to the same upward pressure with a large proportion of gas fired power generation making up the UK energy mix.
The GB pound fell against the Euro and the US Dollar making UK products more attractive to Continental traders. Weakness in sterling came from worries surrounding the impending EU referendum as polls showed the remain campaign in the lead.
Positive sentiment on the crude oil and coal markets helped firm further dated contracts. This strengthening of the oil market stemmed from rising speculation ahead of an OPEC meeting held in Vienna regarding the state of the market. Further strength arose from a fall of Russian oil output in the previous month and statements from Saudi authorities that the country would not flood the market. Coal found support from a rise in Indian and European demand and a concurrent fall in Indonesian output.
As the month progressed, the bears took hold with the return of gas infrastructure in the Continental shelf and Norway. Norwegian capacity increased with the Kollsnes gas processing plant and the Troll gas field coming back online from planned works; only to fall again a week later with three further outages that were quickly resolved over a weekend. Further polls showing the leave campaign of the UK’s EU referendum ahead send the GB pound down again, although this quickly recovered dissuading Continental traders from buying UK energy contracts. A weaker US dollar pushed the month ahead Brent crude oil contract above $51/bbl, which offered far dated contracts support.
These bears were quickly routed with a further batch of unplanned outages at the Gullfaks and Kvitebjørn facilities. A previous attempt to bring back the Gullfaks facility failed, curtailing production by 26.5 mcm/day. Consequently, the Norwegian import pipeline, Langeled, saw swings between 22 and 70 mcm/day. Volatility in Norwegian flows contrasted with the Belgian interconnector, IUK which remained offline. The IUK is, under normal circumstances, expected to be exporting UK gas to the Continent this time of year.
Late in the month we saw further reductions in deliveries from UK Continental Shelf facilities. The CATS terminal underwent a period of maintenance, joined by the St. Fergus terminal after an unexpected outage.
In keeping with the theme that has dominated the prompt market for the month, Centrica announced that the UK’s largest storage facility, Rough, would be offline until the 3rd August (at least 42 days). No injections or withdrawals will be made until after this time due to an issue with one of the wells. The announcement pushed up the curve dramatically, with gains of near 7% on the Winter-16 gas contract over the course of one trading day.
There is potential that Britain will enter the Winter period with record low gas inventories. Not long after Dutch authorities announced that Groningen, the largest gas field in Europe, is to have its capacity reduced by 11% from the start of October. The restriction was imposed over concerns over the structural integrity of the formation after a spate of earth tremors in the Groningen province.
In the early hours of the 24th, it became clear that the United Kingdom had voted to leave the European Union by 52% to 48%. The GB pound subsequently plummeted by 6% against the Euro, fuelling buying interest amongst Continental traders – particularly the Winter-16 contracts which became more desirable thanks to the outage at Rough. Brent crude oil fell also along with commodities, although not enough to counter the weakening of the GB pound.