Weather Outlook 2019 - Energy HQ
←
→
Page content transcription
If your browser does not render page correctly, please read the page content below
Weather Outlook 2019
Weather Outlook 2019
Introduction
As we head out of winter and into spring, it is a good opportunity to
reflect on the weather we were anticipating this winter, both here
in the UK and across Europe, against what we actually experienced.
We will also look ahead to what we can expect this summer and
what it could mean for UK wholesale gas and power prices.
Ben Spry
Head of Risk Management
at Energy HQ, npower Business Solutions
energy-hq.co.uk 2
Weather Outlook 2019
Winter 2018/19
Winter 2018/19 was originally predicted to be particularly cold, with fears that a weak polar vortex
and low sun spot activity would bring a cold winter to the UK. However, it was the United States that
bore the brunt of this weather phenomenon, caused by a weakening of the vortex that allowed cold
air to escape from the North Pole and form over the Midwest United States. This sent temperatures
plummeting to life-threatening levels with cities such as Chicago having experienced temperatures
far in excess of minus thirty degrees Celsius. Therefore, fears surrounding the vortex were correct,
with the UK and Europe lucky to avoid such severe cold weather that could have led to
a substantial premium on gas and power prices.
In fact, the UK experienced a warm winter and February in particular had a record number of days
above the expected average temperatures for the month. Tuesday 26th February reached the highest
levels since records began, with a high of 21.2 degrees Celsius recorded in London, against a typical
average of only 9 degrees. Overall, this was the UK’s second mildest February since records began.
Perhaps more significantly for gas and power prices, milder temperatures were also
experienced in Asia and this had a substantial knock-on effect to the landscape of the
European gas market.
The warmer temperatures reduced premiums for LNG gas in Asia, resulting in the stockpiling of gas
earlier in the year in a bid to avoid a repeat of the winter 2018, also ensuring that there was plenty
of LNG supply this winter. This sent the Japan Korean Marker (JKM), the benchmark price for spot
physical cargoes delivered into Japan, South Korea, China and Taiwan, tumbling. As a result, the
reduced financial incentives for cargoes to head to Asia, led to a rerouteing of cargoes to Europe,
which has been one of the biggest surprises and a significant driver of softer wholesale energy
prices this winter.
energy-hq.co.uk 3
Weather Outlook 2019
Looking ahead
to summer 2019
The latest scientific research suggests the world is getting warmer,
with the Met Office stating that the UK is likely to experience a
very hot summer every five years. However, the weather remains
notoriously difficult to predict, even this close to the summer.
The latest Met Office long range forecasts are predicting that temperatures for this spring are
looking more likely to be above seasonal average, than below. This has fuelled some sentiment
amongst traders that the UK summer could be as hot, or even surpass, last year’s heat wave.
In the most extreme scenarios, climate scientists and meteorologists have raised the prospect
that in the event of an El Niño, it is entirely possible that 2019 will be the hottest year ever.
An El Niño is the biggest fluctuation in the Earth’s climate system and can trigger
significant weather events across the globe. It is widely used to describe the warming
of the sea surface temperature that occurs every few years, typically in the central-
east equatorial Pacific. Despite forming so far away, this can have a huge impact on the
weather that we experience here in the UK and is certainly a story to keep an eye on.
This year’s relatively dry February has lowered water levels in the River Rhine in Germany, with
hydrologists voicing their concerns that we could see a drought later in 2019. Reduced water
levels also increases the risk that barges could face difficulties transporting cargoes upstream
in the summer, raising the prospect of prices rising for commodities such as coal and gas.
During periods of prolonged high temperatures and low wind output, there is an increased
reliance on nuclear power stations. However, last year’s heat wave also caused problems for
Europe’s nuclear fleet. Water is the so called ‘Achilles’ heel’ of nuclear power stations, as a
vast amount of cooling water is required before being returned back to the rivers, lakes or the
sea from which it came from, albeit at a much warmer temperature. This caused substantial
environmental problems, with the French Government placing restrictions on the amount of
water being used, as raising water temperatures can cause a significant threat to marine wildlife.
This then led to a reduction in French nuclear capacity at a time where renewable generation
was also at low levels and a premium across European power prices as more expensive forms
of power generation were sourced and demand for power on the Continent intensified.
energy-hq.co.uk 4
Weather Outlook 2019
Countries with hot climates can see their electricity profile soar in times of extreme heat due to increased demand
for air conditioning. This leads to greater upward pressure on power. In France, for example, hot weather is estimated
to boost demand in the region of 2GW in the summer months.
The UK is now also beginning to see its demand profile shift. Traditionally demand only spiked during periods of
cold weather, however, as shown last summer the UK is also beginning to feel the effects of extreme heat. A study
by Dr Iain Staffell of Imperial College London, has found that for every degree rise in temperature during June 2017,
electricity demand rose by 0.9% or 300 MW, with the very hottest days of summer requiring the grid to deliver an
additional 1.5 GW of power. Subsequently, this can lead to swings in the within day markets, as last year the UK
experienced relatively strong within day prices when compared to 2017, as shown below.
APX Outturn 2017 versus 2018
120.00
100.00
80.00
£/MWh
60.00
40.00
20.00
0.00
01-May
08-May
15-May
22-May
29-May
07-Aug
14-Aug
21-Aug
28-Aug
04-Sep
11-Sep
18-Sep
25-Sep
05-Jun
12-Jun
19-Jun
26-Jun
03-Apr
10-Apr
17-Apr
24-Apr
03-Ju1
10-Ju1
17-Ju1
24-Ju1
31-Ju1
APX BL Outturn 2017 APX BL Outturn 2017
energy-hq.co.uk 5
Weather Outlook 2019
Conclusion
In summary, the UK has seemingly dodged a bullet this winter
with the extreme cold weather impacting the Midwest of the
United States. The mild temperatures here in the UK, Europe
and Asia has led to a significant rerouteing of cargoes and
largely explains the price falls we have seen in Q1 2019.
What is in store for the UK and Europe this summer remains
difficult to predict. Latest long range forecasts suggest the UK
will experience an above average summer but these forecasts are
liable to change. In the most extreme scenario, another heat wave
could pose further difficulties for Europe’s ageing nuclear fleet,
particularly if water temperatures begin to rise.
Within day prices as shown last year were impacted by the climbing
temperatures, but to what extent this was due to the summer heat
wave increasing demand, as well as the fundamentally strong
prices at the time, is difficult to gauge.
energy-hq.co.uk 6
Thank you
For more information about the Weather Outlook for 2019, contact us
and a member of our team can guide you through the next steps and
answer any questions you may have.
Contact us
0800 193 6866 nbs@npower.com
Follow us
Energy-HQ.co.uk @npower_nbs
npower Business Solutions Energy HQ, npower Business Solutions
Phone calls: We may monitor and/or record calls for security, quality or training purposes. Call charges to numbers beginning with 0800 should be free if you are calling from
a business mobile or landline but this will depend on your contract. Calls to 0330 numbers will cost you no more than 01 and 02 numbers from landlines or mobiles. If you get
‘inclusive minutes’ with your package, calls on a 0330 number will be part of these. Please check with your operator for exact charges.
npower is a registered trademark and is the trading name of Npower Limited (Registered No. 3653277) Npower Northern Limited (Registered No. 3432100) Npower Commercial
Gas Limited (Registered No. 3768856). Your npower supply company is named on your contract Registered Office: Windmill Hill Business Park, Whitehill Way, Swindon SN5 6PB
You can also read
