seven year uk energy price forecast update oil, gas and power · pdf fileseven year uk energy...

A Unique Perspective

Seven Year UK Energy Price Forecast UpdateOil, Gas and Power Prices to 2021

JANUARY 2015

CONtENtS

Summary

Economy

Crude Oil

Gas

Power

02 Copyright © EQJHA Limited trading as EnergyQuote JHA: Seven Year UK Energy Price Forecast is published quarterly by EnergyQuote JHA

SummarytAbLE 1: ENERGYQUOtE JHA OiL, GAS ANd POwER SUmmARY

2014 2015 2016 2017 2018 2019 2020 2021

OIL: $ per bbl 99.5 59.5 75.8 78.2 79.8 83.7 88.4 90.1

GAS: p/th 46.3 51.7 49.3 53.1 48.8 51.3 50.2 51.0

POWER: £/MWh 40.9 44.9 51.9 51.7 51.5 51.4 47.2 46.6

Whilst both the global, European and UK economies will continue to see economic growth over the next couple of years, GDP will increase at a lower rate than previously forecast. Weaker investment, deflation concerns in the Eurozone and a slowdown in China are the key drivers behind the lower forecast. Crude prices are likely to stay at current levels for at least the first half of this year, until the market clears the excess supply. Gas prices will be impacted by movements in the crude price and increasing LNG supplies. The geopolitical risk from the Russia/Ukraine conflict has abated for the time being. Power prices will be affected by tighter margins, as coal fired plant closes.

EconomyGlobal growth in 2015/16 is projected by the IMF to be at 3.5 and 3.7 percent, a downward revision of 0.3 percent relative to their October forecast. The revision was due to a number of reasons:

First, oil prices in US dollars have declined by about 55 percent since September. The decline is partly due to unexpected demand weakness in some major economies, in particular, emerging market economies. But the much larger decline in oil prices suggests an important contribution of oil supply factors, including the decision of the Organization of the Petroleum Exporting Countries (OPEC) to maintain current production levels despite the steady rise in production from non-OPEC producers, especially the US.

Second, while global growth increased broadly as expected to 3¾ percent in the third quarter of 2014, up from 3¼ percent in the second quarter, this masked marked growth divergences among major economies. Specifically, the recovery in the US was stronger than expected, while economic performance in all other major economies—most notably Japan—fell short of expectations. The weaker-than-expected growth in these economies is largely seen as reflecting ongoing, protracted adjustment to diminished expectations regarding medium-term growth prospects

Third, with more marked growth divergence across major economies, the US dollar has appreciated some 6 percent in real effective terms relative since October 2014. In contrast, the euro and the yen have depreciated by about 2 percent and 8 percent, respectively, and many emerging market currencies have weakened, particularly those of commodity exporters.

Fourth, interest rates and risk spreads have risen in many emerging market economies, notably commodity exporters, and risk spreads on high-yield bonds and other products exposed to energy prices have also widened. Long-term government bond yields have declined further in major advanced economies, reflecting safe haven effects and weaker activity in some, while global equity indices in national currency have remained broadly unchanged since October.

The Eurozone is turning the corner from recession to recovery. Growth is projected to strengthen to 1 percent in 2014 and 1.4 percent in 2015, but the recovery will be uneven. The pickup will generally be more modest in economies under stress, despite some upward revisions including Spain. Activity in the UK has been buoyed by easier credit conditions and increased confidence. Growth is expected to average 2¼ percent in 2015–16, but economic slack will remain high.

Inflation in the UK and in the Eurozone is expected to remain low reflecting low food and energy price. These lower prices reflect falls in global commodity prices, which in turn reflect both the slowdown in global demand and positive news about supply. Cost pressures from the labour market

will also remain subdued due to slack in the labour market and subdued productivity growth. It is estimated that CPI inflation will average, 2.0 per cent over the next two years.

Crude OilThe US Energy Information Administration (EIA) estimated that global consumption grew by 0.9 million bbl/d in 2014, averaging 91.4 million bbl/d for the year. It expects global consumption to grow by 1.0 million bbl/d in both 2015 and 2016. Non-OECD consumption, grew by 1.2 million bbl/d in 2014, is projected to grow by 0.9 million bbl/d in 2015 and 1.1 million bbl/d in 2016. The biggest reduction in forecast non-OECD consumption growth in 2015 comes from a 0.2-million-bbl/d decline in Russian consumption because of its economic downturn. Russia’s consumption is expected to decline by a similar amount in 2016. China is the leading contributor to projected global consumption growth, with consumption expected to increase by an annual average of 0.3 million bbl/d over the next two years.

OECD consumption, which fell by 0.3 million bbl/d in 2014, is expected to grow by 0.1 million bbl/d in 2015 and remain relatively flat in 2016. Japan and Europe accounted for almost the entire decline in 2014 and are expected to continue to decline over the next two years, albeit at a lesser rate than in 2014. The US is the leading contributor to projected OECD consumption growth, with U.S. consumption increasing by 0.3 million bbl/d in 2015 and 0.1 million bbl/d in 2016

The EIA estimates that non-OPEC production grew by 2.0 million bbl/d in 2014, averaging 56.2 million bbl/d for the year. Non-OPEC supply growth is expected to slow over the next two years mostly because of lower projected oil prices. Non-OPEC production is predicted to grow by 0.7 million bbl/d in 2015 and 0.5 million bbl/d in 2016, with the US as the leading contributor. The slower growth in total non-OPEC supply is largely attributable to slower production growth in the US, Canada, and Central and South America. Additionally, production in Europe and Eurasia is projected to decline.

OPEC crude oil production averaged 29.9 million bbl/d in 2014, a slight decline from the previous year. EIA expects OPEC crude oil production to remain flat in 2015 and fall by 0.3 million bbl/d in 2016. Iraq will be OPEC’s largest contributor of growth over the next two years, but its growth is expected to be offset by production declines from other Persian Gulf producers. Geopolitical issues remain a risk. The threat of the Islamic State (ISIL) on northern Iraqi production and exports still looms as does the unrest in Libya.

The EIA expects global oil inventories to continue to build in 2015, keeping downward pressure on oil prices. The downward price pressures will be concentrated in the first half of 2015 when global inventory builds


are expected to be particularly strong. Eventually, the market will clear its excesses and, in the absence of some shock, prices should reach an equilibrium later this year. The drop in oil prices has accelerated in recent weeks, as leading OPEC members such as Saudi Arabia and Kuwait have resisted calls to cut production. The new Saudi King, Salman bin Abdulaziz has pledged continuity, therefore it looks unlikely that the kingdom will alter oil production in the coming months.

GasCurrently around half of European gas volumes are linked to oil prices rather than hub pricing. The drop in the oil price since last Summer and the prospect of a period of low oil prices going forward, will ensure that natural gas prices should remain low for the foreseeable future.

Concerns that Russia may cut off gas deliveries to Europe over the ongoing Ukraine crisis seems to have diminished. The European Commission helped negotiate a ‘winter gas deal package’ which meant Kiev resumed buying Russian gas at a price of $378 per 1,000 cubic metres in the fourth quarter of 2014. That price included a discount of $100 per 1,000 cubic metres. The agreement expires on April 1 2015. It is unclear whether Russia would be willing to offer a discount on any renegotiated contract. Tax revenue from Gazprom is increasingly needed as companies all but cut off from global capital markets due to Western sanctions over Ukraine turn to the state for funds to stay afloat. Although negotiations will be tough, it is unlikely Russia will not come to an agreement to the Ukraine for the delivery of gas.

In any case Europe is less reliant on the Ukraine link, with improved gas infrastructure now meaning supplies could go via alternative routes in the increasingly unlikely event of disruption, for example the Nord Stream pipeline. Also, there is the potential to import more supplies from more diverse sources, such as LNG from Qatar. The economic performance of the UK and Europe’s economy is also a crucial determinant of gas demand. Although the UK is growing, there are concerns over the slowing down of growth in the Eurozone, which will suppress demand.

UK gas production will continue to decline, albeit at a slower rate. However, the restarting of Japanese nuclear reactors should provide more LNG at more competitive prices for delivery. Some reductions in Norwegian supplies are likely to be seen between 2016 and 2019, leading to increased reliance on gas from alternative sources.

There is a significant potential for the development of a shale gas industry in the UK. The EIA has estimated that there are more than 700 million barrels of oil in the counties of Sussex and Surrey, close to the London metropolitan area. Given the great success of shale oil and gas in the US in reducing import dependency, and boosting the economy, the UK Government is keen to replicate this success. To aid the development of a shale oil and gas sector, it is putting in place a package of incentives to encourage investment and get communities behind plans to exploit this resource. Although the right commercial environment is starting to take shape, there are major constraints to the development of a shale oil and gas sector in Great Britain, not least expertise and technology. It is not expected that sufficient supplies of shale gas will come on-line during the forecast period to have any significant bearing on gas prices. Concerns at a local level could also halt or delay projects. Just recently Lancashire County Council planners recommended rejecting a fracking application due to noise and traffic problems.

PowerIncreasingly over the period renewables will form a greater part of the energy mix, as the UK seeks to move towards meeting the aim of achieving the EU target of having a 20 percent share of renewables in the energy mix by 2020. Whilst the marginal cost of wind energy for example is negligible, high capital costs will need to be recovered. Furthermore, use of gas as back-up supply

will be required, adding further costs to the consumer. As the economic recovery accelerates, demand will increase. However, demand growth will be constrained by greater energy efficiency and a trend towards more self-generation among large users.

A capacity market has been established which should reduce the likelihood of future blackouts by ensuring there is sufficient reliable capacity to meet demand. The first auction took place in December 2014 and a total 49.3 GW has been awarded. Thermal coal prices will continue to be subdued for the immediate future as new supplies outpace demand growth but may rise in late 2015 as Asian demand picks up. Coal prices have dropped by around 45 percent in the past three years as healthy production in exporter countries such as Australia, South Africa, Colombia and the United States clashed with sluggish demand in Europe and increasingly Asia.

UK Coal fired plants have been affected by the EU Large Combustion Plant Directive (LCPD), which limits emissions of pollutants from all power plants. Those plants that have chosen to ‘opt out’ of the implementation of the required technologies to meet the emissions standards of the directive must close once they have operated for a maximum of 20,000 hours from 1 January 2008 to 31 December 2015. By the end of 2015, 11.5 GW of coal and oil plant will have closed as a result of the LCPD. Another directive, The Industrial Emissions Directive (IED), will have an additional impact. This directive consolidates the LCPD with six other existing directives, and will impose more stringent emissions limits on large combustion plant. Existing plant will be able to ‘opt in’ either by committing to the directive’s emission limit values from 2016, or by entering into a Transitional National Plan from 2016–2020 and fully complying with the emission limit values from 2020. Opted-out plant will be permitted to operate for a maximum of 17,500 hours between 2016 and 2023, after which they must close.

Magnox has been given consent to extend the life of its Wylfa reactor until December 2015 by transferring the fuel from unit 2. It was due to close in September 2014. A 5-year life extension has been granted to the Hartlepool plant, taking the decommissioning date to 2024.

The 880MW Carrington CCGT is currently under construction and is expected to be operational next year. There are no other new gas fired plants under construction. Now that the market electricity reforms are in place, more investment is likely to come on line, though it will take at least three years for this to have a bearing on margins. Over 7.8GW of onshore wind capacity has already been built and 1.5GW is under construction. There is a further 5.3GW with planning consent and 6.4GW in the process of applying for planning consent. Offshore wind capacity is also increasing exponentially. In addition to the offshore wind capacity already installed, 10.8GW is either in construction or has planning approval, and a further 5.8GW is in the planning system.

ElecLink is planning a 1GW interconnector with France, which would be routed through the channel tunnel. It could be operational in 2016. National Grid is actively working on a number of projects that could link the UK with Belgium, Norway and another link with France. None of these are expected to be complete before 2018. Further potential projects include links with Ireland, Denmark and Iceland.


tAbLE 2: ENERGYQUOtE JHA FORECASt bRENt CRUdE SPOt PRiCES ($/bbL)

JAN 2014

FEB 2014

MAR 2014

APR 2014

MAY 2014

JUN 2014

JUL 2014

AUG 2014

SEP 2014

OCT 2014

NOV 2014

DEC 2014

Month Forecast 107.5 108.9 107.7 108.1 109.4 112.2 108.0 103.2 98.5 88.1 79.5 63.0

Year Average 2014 99.5 Year Average Percentage Increase -8.5

JAN 2015

FEB 2015

MAR 2015

APR 2015

MAY 2015

JUN 2015

JUL 2015

AUG 2015

SEP 2015

OCT 2015

NOV 2015

DEC 2015

Month Forecast 50.3 50.2 53.3 55.6 57.3 57.7 59.4 64.6 66.8 66.0 66.8 65.9

Year Average 2015 59.5 Year Average Percentage Increase -40.2

JAN 2016

FEB 2016

MAR 2016

APR 2016

MAY 2016

JUN 2016

JUL 2016

AUG 2016

SEP 2016

OCT 2016

NOV 2016

DEC 2016

Month Forecast 67.0 70.0 72.0 76.9 77.8 77.7 80.3 80.8 81.3 78.3 76.1 71.4

Year Average 2016 75.8 Year Average Percentage Increase 27.4

JAN 2017

FEB 2017

MAR 2017

APR 2017

MAY 2017

JUN 2017

JUL 2017

AUG 2017

SEP 2017

OCT 2017

NOV 2017

DEC 2017

Month Forecast 69.4 72.4 74.4 79.3 80.2 80.1 82.7 83.2 83.7 80.7 78.5 73.8


JAN 2018

FEB 2018

MAR 2018

APR 2018

MAY 2018

JUN 2018

JUL 2018

AUG 2018

SEP 2018

OCT 2018

NOV 2018

DEC 2018

Month Forecast 76.5 72.7 76.3 78.7 78.9 81.5 81.8 83.7 84.0 84.4 81.2 77.8


JAN 2019

FEB 2019

MAR 2019

APR 2019

MAY 2019

JUN 2019

JUL 2019

AUG 2019

SEP 2019

OCT 2019

NOV 2019

DEC 2019

Month Forecast 76.3 78.2 78.4 81.0 85.2 85.4 87.2 87.4 87.7 84.9 85.7 86.7


JAN 2020

FEB 2020

MAR 2020

APR 2020

MAY 2020

JUN 2020

JUL 2020

AUG 2020

SEP 2020

OCT 2020

NOV 2020

DEC 2020

Month Forecast 87.5 87.0 89.5 88.9 88.5 88.4 88.1 87.9 88.5 88.7 89.0 89.0


JAN 2021

FEB 2021

MAR 2021

APR 2021

MAY 2021

JUN 2021

JUL 2021

AUG 2021

SEP 2021

OCT 2021

NOV 2021

DEC 2021

Month Forecast 89.2 88.9 88.4 88.2 90.8 90.7 90.4 90.2 90.8 91.0 91.3 91.3


Appendix


Appendix – continued

tAbLE 3: ENERGYQUOtE JHA FORECASt GAS dAY AHEAd PRiCES (PPt)

APR 2014

MAY 2014

JUN 2014

JUL 2014

AUG 2014

SEP 2014

OCT 2014

NOV 2014

DEC 2014

JAN 2015

FEB 2015

MAR 2015

Month Forecast 49.9 45.5 39.5 37.6 40.6 48.6 50.4 54.8 53.9 45.8 44.8 44.6

April Year Average 2014 46.3 Year Average Percentage Increase -28.3

APR 2015

MAY 2015

JUN 2015

JUL 2015

AUG 2015

SEP 2015

OCT 2015

NOV 2015

DEC 2015

JAN 2016

FEB 2016

MAR 2016

Month Forecast 43.5 42.7 44.4 42.7 46.8 50.9 55.4 59.7 61.4 58.9 57.3 57.3

April Year Average 2015 51.7 Year Average Percentage Increase 11.6

APR 2016

MAY 2016

JUN 2016

JUL 2016

AUG 2016

SEP 2016

OCT 2016

NOV 2016

DEC 2016

JAN 2017

FEB 2017

MAR 2017

Month Forecast 42.3 41.3 40.5 42.2 40.5 44.6 50.5 57.6 60.4 59.0 58.7 54.0


APR 2017

MAY 2017

JUN 2017

JUL 2017

AUG 2017

SEP 2017

OCT 2017

NOV 2017

DEC 2017

JAN 2018

FEB 2018

MAR 2018

Month Forecast 52.2 51.8 51.5 51.2 53.0 54.6 56.3 55.9 55.0 54.5 50.9 51.2


APR 2018

MAY 2018

JUN 2018

JUL 2018

AUG 2018

SEP 2018

OCT 2018

NOV 2018

DEC 2018

JAN 2019

FEB 2019

MAR 2019

Month Forecast 49.7 47.2 45.3 45.3 46.3 47.2 48.1 50.7 51.7 51.4 51.9 50.6


APR 2019

MAY 2019

JUN 2019

JUL 2019

AUG 2019

SEP 2019

OCT 2019

NOV 2019

DEC 2019

JAN 2020

FEB 2020

MAR 2020

Month Forecast 49.8 48.1 48.7 51.2 49.8 49.7 50.2 52.9 54.3 54.4 53.9 52.2


APR 2020

MAY 2020

JUN 2020

JUL 2020

AUG 2020

SEP 2020

OCT 2020

NOV 2020

DEC 2020

JAN 2021

FEB 2021

MAR 2021

Month Forecast 50.5 49.4 48.0 48.3 48.1 48.1 49.2 50.5 51.5 52.5 53.1 52.9


APR 2021

MAY 2021

JUN 2021

JUL 2021

AUG 2021

SEP 2021

OCT 2021

NOV 2021

DEC 2021

JAN 2022

FEB 2022

MAR 2022

Month Forecast 51.3 50.2 48.8 49.1 48.9 48.9 50.0 51.3 52.3 53.3 53.9 53.7




tAbLE 4: ENERGYQUOtE JHA FORECASt GAS dELivEREd PRiCES (PPt)

APR 2014

MAY 2014

JUN 2014

JUL 2014

AUG 2014

SEP 2014

OCT 2014

NOV 2014

DEC 2014

JAN 2015

FEB 2015

MAR 2015

Month Forecast 65.8 61.4 55.4 53.5 56.5 64.5 66.3 70.7 69.8 61.7 60.7 60.4


APR 2015

MAY 2015

JUN 2015

JUL 2015

AUG 2015

SEP 2015

OCT 2015

NOV 2015

DEC 2015

JAN 2016

FEB 2016

MAR 2016

Month Forecast 59.8 59.0 60.7 59.0 63.1 69.2 73.6 77.9 79.6 77.1 75.5 75.5


APR 2016

MAY 2016

JUN 2016

JUL 2016

AUG 2016

SEP 2016

OCT 2016

NOV 2016

DEC 2016

JAN 2017

FEB 2017

MAR 2017

Month Forecast 60.9 59.9 59.1 60.8 59.1 63.2 69.1 76.2 79.0 77.6 77.3 72.6


APR 2017

MAY 2017

JUN 2017

JUL 2017

AUG 2017

SEP 2017

OCT 2017

NOV 2017

DEC 2017

JAN 2018

FEB 2018

MAR 2018

Month Forecast 71.4 71.0 70.7 70.4 72.2 73.8 75.5 75.1 74.2 73.2 69.6 69.9


APR 2018

MAY 2018

JUN 2018

JUL 2018

AUG 2018

SEP 2018

OCT 2018

NOV 2018

DEC 2018

JAN 2019

FEB 2019

MAR 2019

Month Forecast 69.0 66.5 64.6 64.6 65.6 66.5 67.4 70.0 71.0 70.5 71.0 69.7


APR 2019

MAY 2019

JUN 2019

JUL 2019

AUG 2019

SEP 2019

OCT 2019

NOV 2019

DEC 2019

JAN 2020

FEB 2020

MAR 2020

Month Forecast 69.5 67.8 68.4 70.9 69.5 69.4 69.9 72.6 74.0 74.1 73.6 71.9


APR 2020

MAY 2020

JUN 2020

JUL 2020

AUG 2020

SEP 2020

OCT 2020

NOV 2020

DEC 2020

JAN 2021

FEB 2021

MAR 2021

Month Forecast 70.8 69.7 68.3 68.6 68.4 68.4 69.5 70.8 71.8 72.8 73.4 73.2


APR 2021

MAY 2021

JUN 2021

JUL 2021

AUG 2021

SEP 2021

OCT 2021

NOV 2021

DEC 2021

JAN 2022

FEB 2022

MAR 2022

Month Forecast 70.8 69.7 68.3 68.6 68.4 68.4 69.5 70.8 71.8 72.8 73.4 73.2




tAbLE 5: ENERGYQUOtE JHA FORECASt POwER dAY AHEAd PRiCES (£/mwH)

APR 2014

MAY 2014

JUN 2014

JUL 2014

AUG 2014

SEP 2014

OCT 2014

NOV 2014

DEC 2014

JAN 2015

FEB 2015

MAR 2015

Month Forecast 41.8 39.9 36.7 35.5 37.8 43.1 44.9 48.1 43.1 39.1 37.6 42.7


APR 2015

MAY 2015

JUN 2015

JUL 2015

AUG 2015

SEP 2015

OCT 2015

NOV 2015

DEC 2015

JAN 2016

FEB 2016

MAR 2016

Month Forecast 40.5 39.2 38.8 43.4 44.9 45.3 49.2 51.9 48.4 45.1 45.0 46.6


APR 2016

MAY 2016

JUN 2016

JUL 2016

AUG 2016

SEP 2016

OCT 2016

NOV 2016

DEC 2016

JAN 2017

FEB 2017

MAR 2017

Month Forecast 45.9 48.8 49.3 49.9 53.2 54.5 58.8 59.5 54.0 50.6 49.8 48.7


APR 2017

MAY 2017

JUN 2017

JUL 2017

AUG 2017

SEP 2017

OCT 2017

NOV 2017

DEC 2017

JAN 2018

FEB 2018

MAR 2018

Month Forecast 47.7 49.1 47.7 47.1 50.1 51.4 55.2 58.8 56.5 52.9 52.1 51.5


APR 2018

MAY 2018

JUN 2018

JUL 2018

AUG 2018

SEP 2018

OCT 2018

NOV 2018

DEC 2018

JAN 2019

FEB 2019

MAR 2019

Month Forecast 51.1 50.6 49.5 49.1 51.2 54.0 54.8 55.8 55.1 51.3 49.1 46.9


APR 2019

MAY 2019

JUN 2019

JUL 2019

AUG 2019

SEP 2019

OCT 2019

NOV 2019

DEC 2019

JAN 2020

FEB 2020

MAR 2020

Month Forecast 47.7 48.3 50.8 48.9 49.3 54.2 55.3 56.0 53.4 52.7 50.4 49.4


APR 2020

MAY 2020

JUN 2020

JUL 2020

AUG 2020

SEP 2020

OCT 2020

NOV 2020

DEC 2020

JAN 2021

FEB 2021

MAR 2021

Month Forecast 48.2 46.2 45.0 44.4 45.3 46.2 47.5 47.9 49.9 49.7 48.7 47.5


APR 2021

MAY 2021

JUN 2021

JUL 2021

AUG 2021

SEP 2021

OCT 2021

NOV 2021

DEC 2021

JAN 2022

FEB 2022

MAR 2022

Month Forecast 45.5 44.3 43.7 44.6 45.5 46.8 47.2 49.2 47.8 49.4 48.4 47.2



Appendix – continuedtAbLE 6: ENERGYQUOtE JHA FORECASt POwER dELivEREd PRiCES (£/mwH)

APR 2014

MAY 2014

JUN 2014

JUL 2014

AUG 2014

SEP 2014

OCT 2014

NOV 2014

DEC 2014

JAN 2015

FEB 2015

MAR 2015

Month Forecast 78.9 76.9 73.8 72.5 74.8 80.2 82.1 85.2 80.2 76.2 74.6 79.8


APR 2015

MAY 2015

JUN 2015

JUL 2015

AUG 2015

SEP 2015

OCT 2015

NOV 2015

DEC 2015

JAN 2016

FEB 2016

MAR 2016

Month Forecast 80.7 79.4 79.0 83.7 85.2 85.6 89.5 92.2 88.6 85.3 85.3 86.8


APR 2016

MAY 2016

JUN 2016

JUL 2016

AUG 2016

SEP 2016

OCT 2016

NOV 2016

DEC 2016

JAN 2017

FEB 2017

MAR 2017

Month Forecast 89.7 92.6 93.1 93.7 97.1 98.4 102.7 103.4 97.9 94.4 93.6 92.5


APR 2017

MAY 2017

JUN 2017

JUL 2017

AUG 2017

SEP 2017

OCT 2017

NOV 2017

DEC 2017

JAN 2018

FEB 2018

MAR 2018

Month Forecast 93.7 95.1 93.7 93.0 96.1 97.4 101.2 104.9 102.5 98.9 98.1 97.5


APR 2018

MAY 2018

JUN 2018

JUL 2018

AUG 2018

SEP 2018

OCT 2018

NOV 2018

DEC 2018

JAN 2019

FEB 2019

MAR 2019

Month Forecast 99.6 99.1 98.0 97.6 99.7 102.5 103.3 104.3 103.6 99.8 97.5 95.4


APR 2019

MAY 2019

JUN 2019

JUL 2019

AUG 2019

SEP 2019

OCT 2019

NOV 2019

DEC 2019

JAN 2020

FEB 2020

MAR 2020

Month Forecast 98.8 99.5 102.0 100.1 100.4 105.4 106.5 107.2 104.6 103.8 101.6 100.5


APR 2020

MAY 2020

JUN 2020

JUL 2020

AUG 2020

SEP 2020

OCT 2020

NOV 2020

DEC 2020

JAN 2021

FEB 2021

MAR 2021

Month Forecast 102.2 100.2 99.0 98.4 99.4 100.3 101.6 102.1 104.1 104.0 103.0 101.8


APR 2021

MAY 2021

JUN 2021

JUL 2021

AUG 2021

SEP 2021

OCT 2021

NOV 2021

DEC 2021

JAN 2022

FEB 2022

MAR 2022

Month Forecast 102.8 101.6 101.0 102.0 102.9 104.3 104.7 106.8 105.3 107.0 106.0 104.8



Appendix – continuedGLOSSARY OF tERmS

AUTOGENERATION: Electricity generated for a company’s own use.

AVAILABILITY: The agreed level of supply capacity made available by both the networks and contracted for by the suppliers to meet the consumer’s highest likely monthly demand – measured in kVA. The site cannot exceed this specified amount without financial penalty and a modified connection agreement.

AVAILABILITY CHARGE: Availability Charges are based on an agreed level of required capacity and should be set at just above the anticipated Maximum Demand. The standard method is to multiply the maximum demand by 1.2.

BACKWARDATION: When the price of near delivery months of futures or physicals contrasts, trades at a premium to more distant months, i.e. future prices are lower than current prices (also known as an inverted market).

BALANCING MECHANISM (BM): Mechanism operated by the National Grid Company (NGC) to balance supply and demand on a half hourly basis.

BASELOAD: The load continuously supplied by generators into the electricity networks over a period of time which demand does not fall below.

BEARISH: A market in which prices are falling.

BETTA: British Electricity Trading and Transmission Arrangements – extension of NETA to include Scotland. Trading and transmission access will be governed by a single set of rules. Came into effect 1 April 2005.

BRENT: Commercial UK North Sea oil field – Brent Crude is widely used as a standard or reference price against which other crude oil grade prices may be fixed.

BSC: Balancing and Settlements Code – rules governing the operation of the balancing mechanism and the imbalance settlement process and the relationships and responsibilities of all electricity market participants.

BSUoS: Balancing service use of system charges - A charge levied to cover the Balancing Market. Component costs include internal & external system operator settlement periods

BULLISH MARKET: A market in which prices are rising.

CARBON INTENSITY: With reference to a power station, it is the ratio between the carbon emitted and power generated.

CCT: Clean Coal Technology. Technologies used to reduce the emissions that are produced as a bi-product of burning coal. For example, FGD.

CCGT: Combined Cycle Gas Turbine – a technology which combines gas turbines and steam turbines, connected to one or more electrical generators at the same plant.

CLIMATE CHANGE AGREEMENT (CCA): Certain intensive energy users have been granted discounts to the Climate Change Levy, up to 80%, in return to reaching agreed emissions reduction targets. The energy user must join a Climate Change Agreement through their sector association in order to take part in the scheme. The energy user must meet certain criteria in order to be eligible to

join a CCA.

CLIMATE CHANGE LEVY (CCL): Tax introduced in April 2001 designed to provide an incentive to meet the UK’s environmental commitments made at the Kyoto Conference. Levy is based on the amount of energy supplied to an enduser – electricity, coal, gas and LPG – and only applies to the industrial and commercial sector. Certain intensive energy users have been granted discounts, up to 80%, from the levy in return to reaching agreed emissions reduction targets.

COMBINED HEAT AND POWER (CHP): CHP, or cogeneration, simultaneously generates useable heat and power in a single process, often installed on the site of industrial plant.

CONTANGO: Market situation in which prices in succeeding delivery months are progressively higher than in the nearest delivery month (also known as Forwardation and is the opposite of Backwardation).

CURVE: The curve, so-called because its components form a curve when plotted, is made up of those periods following the end of the present calendar month.

DAY AHEAD (D-1): The price of a commodity for delivery on the following day.

DISTRIBUTION: Transportation of electrical energy from the Grid Supply Point (GSP) to the customer’s intake point.

DISTRIBUTION LOSSES: Charges relating to electrical losses which occur as electricity is transmitted through the lines of the DNO.

DISTRIBUTION NETWORK OPERATOR (DNO): The DNO manages the installation and upkeep of their cabling, and the distribution of electricity to the supply point. They are also often referred to as the host REC (Regional Electricity Company).

DUAL FIRING: Where power stations have the ability to burn more than one type of fuel, typically coal and gas, coal and oil or oil and gas.

DUoS: Distribution Use of Systems – charge levied by the DNO for the transmission of electricity through its local network.

EHV: Extra High Voltage.

ELEXON: ELEXON is the Balancing and Settlement Code Company – procuring and providing services to administer and implement the balancing and settlement rules. Signatories to the BSC contribute to the costs of ELEXON. Elexon charges are levied to recover the costs of running ELEXON. (www.elexon.co.uk)

EMBEDDED GENERATION: Electricity generation by plant which has been connected to the distribution networks of the DNOs rather than directly to the NGC’s transmission systems.

EMISSION ALLOWANCE: Typically, emissions reduction schemes set a cap for total emissions for each participant over a period and allocate each participant tradable units, called emissions allowances, up to the cap. Participants buy and sell emissions allowances and at the end of the period must hold allowances or credits equal to their actual emissions to be in compliance. See EU allowances and UK Allowances.


GLOSSARY OF tERmS – CONtiNUEd


ENERGY INTENSITY: The intensity of energy use, measured by energy consumption relative to the value of manufactured products.

ENERGY-ONLY CONTRACT: Contract based on agreed prices, including the supplier’s margin, for the supply of electricity, with other charges passed through at cost.

FGD: Flue Gas Desulphurisation. A technology used by power plants that employs a sorbent, usually lime or limestone, to remove sulphur dioxide from the gases produced by burning fossil fuels.

FIRST TIER SUPPLY: A regulatory term used in electricity regulation to describe the supply of electricity from the incumbent local electricity company, i.e. host REC.

FIXED DAY AND NIGHT: Simplest type of contract for electricity with different unit prices for daytime and night time.

FORWARD CONTRACT: As a futures contract (below) but terms are privately negotiated and not standardised.

FUTURES CONTRACT: An agreement to purchase or sell a commodity for delivery in the future

GAS YEAR: Period commencing 0600 1st October through to 0600 1st October the following year.

GATE CLOSURE: In relation to a Settlement Period. It defines the moment when bilateral contracting ends and the Balancing Mechanism for each associated trading period begins.

GSP: Grid Supply Point – point between Transmission and Distribution systems where responsibility for electricity supply transfers from NGC to the local REC.

GW: Gigawatt = 1,000MW.

HARDENING: A price which is gradually stabilising or a slowly advancing market.

HIGH DISTRIBUTION ASSISTANCE SCHEME: Assistance towards high cost of distributing electricity in Northern Scotland. It is passed onto all suppliers under BETTA. They pass the cost on to the consumer in the form of a unit charge. Charge is the published payments (£41,950,000) divided by the forecast demand for the year. Now officially called AAHDC.

HV: High Voltage – supply voltage above 1000 volts (1kV).

I&C: Industrial and Commercial – industry sectors.

INTERCONNECTOR: Gas pipeline linking the UK and the Continent, from Bacton to Zeebrugge.

kVA: Kilovolt-Ampere – a unit of electricity incorporating the reactive power component.

kW: A unit of power, equivalent to 1000W or 1000 J/s.

kWh: A unit of energy, the amount of power used in an hour. (Energy (kWh) = Power (kW) x Time (h))

LEVY EXEMPTION CERTIFICATE (LEC): Exemption to the payment of Climate Change Levy (CCL) on the electricity to which the LEC relates. LECs are issued for electricity generated from renewable sources, good quality CHP and coal mine methane.

LIQUEFIED NATURAL GAS (LNG): Oilfield or naturally occurring gas, chiefly methane, liquefied for transport or storage.

LIQUID MARKET: Market in which buying and selling can be accomplished with minimal changes in price. Market in which there are sufficient trades to accurately reflect fundamental influences on the market price.

LOSS OF LOAD PROBABILITY (LOLP): Figure used in the calculation of the Capacity Payment, which relates to the probability that demand for electricity will exceed supply.

LV: Low Voltage – supply voltage below 1000volts.

MAXIMUM DEMAND: The highest average demand occurring in a half hour period. Maximum Demand tariffs comprise: a) fixed monthly charge; b) an availability charge per kVA of the highest demand expected; c) a price per unit for day and night units; d) a maximum demand charge based on the measured maximum number of units used in one half hour period in the month.

MW: Megawatt – 1,000 kW. NATIONAL GRID: National Grid provide gas transportation, metering and meter reading services throughout Great Britain for the companies that supply domestic, industrial and commercial consumers.

NATIONAL TRANSMISSION SYSTEM (NTS): The high pressure network of pipes that transports gas between the terminals, storage facilities and Local Distribution Zones for local distribution.

NETA: New Electricity Trading Arrangements – introduced in March 2001 for wholesale power trading in England and Wales, replacing the Electricity Pool which was established in 1990 following the privatisation of the electricity industry. Has now been replaced by BETTA.

OUTAGE: Period during which a generation plant is temporarily shut down, e.g. for maintenance, inspection, testing or refuelling. Scheduled outages are referred to as planned and unscheduled as unplanned.

OUTTURN: The final price for that period of consumption that has just passed.

PES: Public Electricity Supply Company.

POWER FACTOR: The proportion of total energy supplied to a site which is actually converted into useful energy output, as opposed to the wasted reactive power.

PROMPT: The ‘prompt market’ is defined as any period up until the end of the present calendar month.

REACTIVE POWER CHARGE (kVArh): Charge for reactive energy if the average power factor falls below a preset level, normally 0.9.

REC: Regional Electricity Company – area distribution company. See map at the end of this section.


GLOSSARY OF tERmS – CONtiNUEd


RENEWABLE ENERGY: Generation of electricity from infinite resources, e.g. wind power or hydro-electricity.

RENEWABLES OBLIGATION (RO): An obligation on electricity suppliers to source a specified percentage of the total electricity supplied to their customers in Great Britain is from eligible renewable sources evidenced by Renewable Obligation Certificates (ROCs) or instead pay the buy-out price.

RENEWABLE OBLIGATION CERTIFICATES (ROC): Tradable certificates issued to generators for each whole megawatt-hour of electricity generated from eligible renewable sources. ROCs can be converted into emissions allowances in the UK Greenhouse Gas Emissions Trading Scheme (UKETS).

ROUGH STORAGE: The UK’s largest gas storage facility just offshore that enters the NTS via the Easington terminal in East Yorkshire.

RPI: Retail Price Index.

SEASONAL TIME OF DAY (STOD): STOD contracts are based on price variation and unit prices may vary by month and individual time period. In additions different rates will apply at weekends, Bank Holidays etc. Rates specified in STOD contract have the highest applicable to winter weekday peak hour consumption, lower rates at weekends and the lowest rates at night.

SECOND TIER SUPPLY: Electricity supply from any other supplier other than local Distribution Company (host REC).

SETTLEMENT CHARGE: A flat fee to cover the collection of second tier data by the data collector (DC)

SETTLEMENT PERIOD: A half-hour period ending on the hour or half-hour.

SOFTEN: A market price that is slowly declining.

SPOT MARKET: Market in which goods or services are traded for immediate delivery at the prevailing price, i.e. the spot price.

STANDING CHARGE: A charge designed to average over and recover from all customers on each tariff the elements of cost which are independent of usage, these include the costs associated with metering, billing and customer services.

SYSTEM BUY PRICE (SBP): The price paid in the Balancing Mechanism by a party that requires more energy to meet its contractual commitments.

SYSTEM SELL PRICE (SSP): The price paid in the Balancing Mechanism by a party that has produced more electricity than it had customers to buy

TARIFF: Published standard charges applied to gas and electricity supplies that are not on a negotiated contract.

THIRD PARTY ACCESS (TPA): Right of any gas or electricity supplier to have access to the national transmission system of that energy, even though the system is operated and/or owned by another organisation.

TRANSMISSION LOSSES: Charges relating to electrical losses which occur as power is transmitted via the National Grid.

TRIAD: The three half-hourly periods in the year with peak electricity consumption, with each period at least 10 days apart, used to calculate the Transmission Charge for the NGC system.

TRIGENERATION: Further development of the technologies used in CHP has led to trigeneration, i.e. generation of electricity and usable heat and/or cooling from the same quantity of fuel in a single operation.

TUoS: Transmission Use of Systems – charges levied by the NGC for the transmission of electricity through the National Grid.

TW: Terawatt = 1,000GW.

UK ETS: UK Greenhouse Gas Emissions Trading Scheme – UK’s voluntary emissions trading scheme for greenhouse gases, which started in April 2002.

VOLATILITY: Measurement of the change in price over a given period.

About EnergyQuote JHA

EUROPEAN PRiCE FORECAStiNG SERviCE

In an environment of energy price volatility and cost uncertainty, major energy users demand a greater understanding of the global and regional fundamentals that influence their longer-term purchasing decisions. Our forecasting service in cooperation with IHS Cera, a global leader in the provision of price forecasting services, is aimed to ensure that major energy users develop a deep understanding of the impact of key commodity markets, energy infrastructure and regulation and provides a robust context for making longer-term purchasing decisions within their purchasing strategy.

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Our Market Intelligence and European advisory team are always happy to discuss any questions you may have. Should you have any queries, please call us on +44 (0)20 7605 2300, or email [email protected]

Publisher’s note: All material or expressions of opinion or advice contained within this publication (together “the Content”) is provided in good faith and is based on information believed to be accurate at the time of publication. EnergyQuote JHA does not accept any responsibility for the reliability of the Content or of actions taken or omitted to be taken as a result of reliance on any part of the Content. Readers should be aware that market conditions fluctuate on a daily basis and they should seek suitable written professional and/or expert advice in these fields on which to base their decisions. All rights reserved. No part of this publication shall be reproduced, copied, transmitted or entered into any computer without the Company’s specific written permission other than stated in the standard Terms and Conditions. All data is based on the previous working day’s closing prices.

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WEEK 15: 12 APRIL 2010



European Weekly Energy

Issue 144

WEEK 15: 12 APRIL 2010


GLOBAL MARKET NEEDS A GLOBAL PLATFORM

…like the more embryonic climate market, the global energy market needs to heal the divides between the rich and poor if all parties are to prosper.

07 APRIL 2010UK Energy FocusIssue: 336

14 APRIL 2010

ITALY SEEKS TO BREAK THE OIL PRICE LINK

After failing to break Eni’s domestic market hold in 2004, the Italian regulator is trying again. This time it has a better chance of succeeding.

European Energy BuyerIssue 152



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