NORDIC – Front weeks “may jump EUR 5” on supply squeeze

(Montel) Front week contracts rose amid colder weather forecasts on Thursday, with one analyst saying they could jump as much as EUR 5 as hydropower reservoirs were running low ahead of the pending spring thaw.

The front-week contract last traded up EUR 0.12 at EUR 26.75/MWh on the Nasdaq Commodities exchange, while the Week 16 contract was EUR 0.60 higher at EUR 27.80/MWh.

By comparison, the Nordic system price has averaged EUR 28.55/MWh so far this week.

“The spot prices are firm despite an underlying improvement of the hydrological balance,” said senior analyst Sigbjørn Seland at Nena.

The hydrological balance – a measure of potential hydropower output stored in reservoirs, snow and soil – had now flipped into positive territory, Seland said.

“However, we are starting to see the contours of a small supply squeeze in the weeks after the Easter holiday as the weather forecasts indicate cooler weather than normal that will delay the snowmelt and curb inflow to the reservoirs. If the weather stays colder than normal, weeks 16 and 17 could jump by another EUR 5,” he added.

“The hydropower producers are, to put it bluntly, emptying their reservoirs before Easter and if the inflow does not pick up after the holiday, there could be little capacity available in the system,” the analyst added.

Drop in temperatures
Different weather forecasts indicate 4.5-7.4 TWh of potential hydropower production from rain and snow over the next 10 days, above the norm of 3.1 TWh, while temperatures are expected to average close to the norm of 3.9C. However, several models indicate a drop in temperatures to below normal levels from next Tuesday, according to SMHI.

Trader Haakon Knudstad at Norwegian utility BKK agreed cold forecasts lifted the front, as this would help to support the spot prices.

“The forecasts indicate a pretty cold weather trend for this time of year,” he said.

However, there was no large supply squeeze in sight, Knudstad said, albeit adding there was still upside potential should the cool weather be prolonged.

The day-ahead contract last traded at EUR 27.80/MWh, compared to the current session’s system price of EUR 27.85/MWh.

Further out, the front-year contract last traded up EUR 0.07 at EUR 23.60/MWh, tracking a small rise in the 2018 API 2 coal contract of USD 0.17 to USD 67.40/t on the Ice exchange.

“We have seen a rise in the coal price, albeit a smaller rise in the corresponding Nordic power contracts, probably of low buying interest. It is very tough to lift the long end of the Nordic curve,” Seland said.