After rangebound movement seen over the last few weeks, upside volatility has once again been prevalent in the UK and European gas markets. Prices rose to 6-week high supported by higher Norwegian maintenance, slightly cooler temperatures, worries about Ukraine peace talks and unrest in the Middle East.
Norwegian gas flows to the UK and Europe plunged to 160 million cubic metres per day on Wednesday, just half of the usual volumes, amid planned one-day outages at the Troll field and Kollsnes processing plant. However, barring any extension, flows should recover on Thursday which in turn should ease market tightness. Temperatures in the UK and Europe should also pick up into next week easing demand levels.
According to analysts a lack of progress in Russia-Ukraine peace talks also provided support. The latest being the EU and UK announcing new sanctions against Russia on Tuesday without waiting for Washington to join them, a day after President Donald Trump’s phone call with Vladimir Putin brought about neither a ceasefire in Ukraine nor fresh U.S. sanctions.
Finally reports that Israel might be planning a strike on Iran lifted oil prices which may have supported the gas markets further. There was also some concern regarding Asian LNG competition although Asian demand still remains tepid.
Elsewhere this week we have seen both UK and EU carbon prices increase supporting power contracts. Following the EU-UK summit on Monday the government announced they reached an early-stage agreement to link both emissions schemes. Both the EU and UK charge power plants and other industrial entities for each ton of carbon dioxide they emit as part of wider efforts to cut emissions and reach climate targets. The benchmark UK allowance (UKA) contract was up from £48 last Friday to almost £55 a metric ton today. The equivalent EUA benchmark contract is trading around 73 euros/ton. Prices in the UK are currently lower than those in the EU and analysts said that linking the two schemes would be likely to result in higher UK prices.
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