Abstract
Introduction
National Grid and Ofgem are forecasting another tight winter supply scenario for the UK energy market. The relevance of soaring wholesale energy prices is keenest felt during the peak consumption period, enhancing the need for players throughout the value chain to be aware of the latest market movements and developments.
Scope of this report
- a comprehensive review of the supply/demand fundamentals that will drive UK wholesale and retail energy prices during the peak consumption period.
- an understanding of structural issues that will determine the utilisation of pivotal gas production, storage and import infrastructure.
- an in-depth analysis of the base case scenario put forward by National Grid/Ofgem for Winter 2006/07 and its impact on wholesale market sentiment.
- an assessment of the key risk factors that will shape strategy throughout the UK energy supply chain this winter.
Research and analysis highlights
UK spot and forward wholesale gas prices will be extremely bullish and volatile during Winter 2006/07. As the peak consumption period nears and trader speculation surrounding supply security intensifies, new record highs in the wholesale price of both gas and power are anticipated. Domestic users should brace themselves for further tariff hikes.
Gas will not necessarily follow UK price signals. Volume flows along the expanded Bacton-Zeebrugge Interconnector and new BBL pipeline will not always respond to UK price signals during the coming winter. The reticence of continental shippers to export storage gas will negate the bearish price impact that expanded UK import capacity should bring.
The spark spread will determine the strategy that generator's pursue this winter. Akin to the Winter 2005/06, the profitability of coal generation will ensure gas-fired operators closely monitor the spark spread for opportunities to profitably self-interrupt. Generation mix will be key to determining the winners and losers in Winter 2006/07
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