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Winter slowly setting in
Fokus week 49 2014
Following last week’s price
increases we have seen
prices fall back a bit again
this week. The winter is generally starting to set in and
some of the long-term forecasts indicate a particularly
cold winter. However, temperatures currently remain
slightly above the norm.
Cold and dry winter ahead?
Here and now
Both the immediate and the more distant forward prices fell last week. As
is the norm when entering the winter
months, water levels in the Nordic reservoirs are declining; however, on the
other hand both temperature and wind
power production are above the norm.
The fall in the forward prices could also
be a counter-reaction from the market,
reacting to the significant increases we
have experienced of late. As the forecasts for the coming period promise
both precipitation and temperatures
above the average, this downward
development may very well continue, but a cold weather forecast could
return prices to an increasing rate.
Our recommendation
The Nordic system prices, particularly
for the Q1 contract but also the 2015
contract, can change significantly
from day to day (in either direction) as
the date of delivery approaches. However, following a noticeable correction,
both contracts now appear extremely attractive. If we experience a cold
winter in Norway and Sweden, Q1 will
likely be delivered at a slightly higher
price than it is currently available at.
Many meteorologists are of the belief
that mild winters are becoming the
new standard. And neither have recent
weather forecasts been characterised
by expectations of a particularly cold
winter ahead. However, the growing
impression appears to be that greater than normal atmospheric pressure
over the Arctic region and a so-called
negative Arctic oscillation will lead to
very cold northerly winds by as early
as the end of December. Should this
be the case this would presumably
also lead to drier weather than normal.
Dry and cold weather always results
in high electricity prices, in part be-
cause electricity consumption is high
due to the cold and in part because
the water reservoirs will not receive as
much melt water when winter comes
to an end, which in turn will require
us to be careful with water. However, long-term forecasts of this nature
constitute a relatively new institution
and they are always very uncertain.
For this reason the energy market will
be inclined to regard them with great
scepticism. However, active research
is ongoing in this area and these forecasts will presumably become more
relevant as they gain in reliability.
Forward
Week 48
Week 49
Difference
ENOMJAN-15
35,38EUR/MWh
34,25 EUR/MWh
-1,13 EUR/MWh
ENOQ1-15
35,15 EUR/MWh
33,99 EUR/MWh
-1,16 EUR/MWh
ENOYR-15
33,05 EUR/MWh
32,25 EUR/MWh
-0,80 EUR/MWh
SYHELQ1-15
6,40 EUR/MWh
6,35 EUR/MWh
-0,05 EUR/MWh
SYOSLQ1-15
-0,55 EUR/MWh
-0,55 EUR/MWh
0 EUR/MWh
Emptying has started in the Nordic reservoirs
Forecasts
Precipitation: Following a long
period of precipitation volumes
below the norm, the situation
has now turned and the coming
ten days indicate substantially
more precipitation than we usually experience at the beginning
of December. Both the EC and
GFS forecasts estimate the
precipitation across the Nordic
countries will be more than 2
TW more than normal. Meteorologists are expecting the coming weekend and the beginning
of week 50 in particular to be
wet.
Winter has set in and little by little this can be clearly noticed in the Norwegian,
Swedish and Finnish water reservoirs. Even though water reservoir levels remain more than 3 percent higher than the same time last year, water volumes
are diminishing in line with the falling temperatures. Water reservoir levels are
now at 75.8 percent in Norway, 65.1 percent in Sweden and 63.3 percent in
Finland. The Nordic hydro-balance remains below the norm for this time of year
and currently has a deficit of 8.0 TWh.
Production and spot: With
largely unchanged temperatures
compared to last week, the spot
price has not experienced much
movement. The Nordic system
price (base) was EUR 33.88/
MWh on Tuesday, 53 cents
higher than last week’s level.
Wind power production over the
next eight days is expected to
be around 3 TW for the Nordic
region, while the average temperature will be around freezing.
Oil decline continues to affect gas prices
The CfDs
Neither did the NO1 CfD for
Q1-15, which is traditionally not
volatile at all, move this week.
Just like last week it ended at
EUR -0.55/MWh. The Finnish
CfD for the same period also
did not experience any notable
fluctuations and on Monday
the price was EUR 6.35/MWh, 5
cents less than the same time
last week.
The OPEC countries were unable to agree about decreasing production
levels during last week’s summit meeting in the oil organisation. This resulted in a notable drop in oil prices and the Brent future for January
2015 is now down to 72.54, a fall of more than 30 dollars in three months.
The decline of oil has also left its mark on gas and coal prices. The gas future for January 2015 has fallen by more than 5.5 percent in just one week
and a continued drop in oil prices could affect gas prices in the long term.
CEO
Espen Fjeld
([email protected])
Telephone: +47 4520 7636
Head of Modelling and Forecasting
Stefan W. Christensen
([email protected])
Telephone: +45 8744 6797