Power prices hit lowest levels since 2007
Business Energy Market Brief - Feb16
Record low oil prices continued to drag UK gas and power contracts down in January.
Sharp falls in oil prices, which dipped below $30/bl in January, remained the primary driver of gas contracts throughout the month. The summer 16 gas contract dropped 10.3% to average 29.3p/th, hitting a record low of 27.4p/th on 21 January. Furthermore, a strong UK gas supply outlook provided additional pressure, with global LNG capacity forecast to rise significantly in the coming years. Seasonal power contracts followed gas prices down, with summer 16 power slipping 7.5% to average £33.1/MWh, and reaching a new low of £31.4/MWh on 21 January. Seasonal gas and power contracts are now at their lowest levels since 2007. With oil prices forecast to fall further in 2016, gas and power contracts are likely to follow.
Spot gas and power prices experienced diverging trends in January. The day-ahead gas contract fell 6.0% to average 32.1p/th, hitting a near six-year low of 28.8p/th on 26 January. Falls came as increased supplies more than offset higher demand levels, which resulted from colder temperatures and reduced wind output. In contrast, day-ahead power rose 9.0% to average £37.4/MWh, hitting a nine-month high of £48.4/MWh on 18 January. Prices climbed as lower wind output and colder temperatures tightened supply margins during the month.