<article><p class="lead">The NBP August market's discount to the October contract has tightened in recent days, while rapid continental injections have brought stocks closer to starting the winter level with a year earlier.</p><p>The August-October spread closed at -1.3p/th on Wednesday, in from -2.375p/th on 29 June, but out from -1p/th earlier in late May. </p><p>The combined French, German and Dutch stockbuild — excluding Norg — has accelerated in the last fortnight with high imports and weak demand.</p><p>Inventories were 14.4TWh lower than a year earlier on Monday morning, in from a deficit of 26.7TWh on 1 June and 63.6TWh at the start of April. Stocks could lag further behind a year earlier by the end of July, even if the vast majority of capacity holders keep making up ground on their injections.</p><p>The annual halt of the 55bn m³/yr <a href="https://direct.argusmedia.com/newsandanalysis/article/1709743">Nord Stream</a> pipeline on 17-30 July will reduce aggregate injections, as Gazprom will need to swing to withdrawals to maintain sales.</p><p>But other capacity holders could have little change in their stockbuild as the Russian firm will use its storage to meet customer nominations. Gazprom uses its storage to meet long-term contract obligations rather than trade summer-winter spreads, resulting in its stock movements having little effect on hub prices.</p><p>The Nord Stream maintenance may only curb the net stockbuild at places where Gazprom holds capacity, such as Bergemeer or Rehden. And Gazprom can catch up on its injections by delivering more from Russia later in the year.</p><p>Nord Stream moving its annual maintenance to July this year from 11-21 September in 2017 will complicate year-on-year stock comparisons as it is difficult to separate out Gazprom's inventories.</p><p>Capacity holders other than Gazprom maintaining a brisk stockbuild over the Nord Stream maintenance could reduce injection demand later in the summer.</p><p>But continental injections, excluding Gazprom's stockbuild, could stay quick next month to continue paring the year-on-year deficit. The stockbuild so far this month of 2.3TWh/d has been above the 2TWh/d in August, which was the highest for any month last year.</p><p>Outright NBP front-winter prices have kept rising despite the strong European stockbuild, which could provide more continental gas for export to the UK during the heating season.</p><p>Firmer coal prices have supported the NBP front-winter contract, with gas remaining at levels that would keep it competitive with coal in the generation mix.</p><p>The NBP fourth-quarter 2018 market has held at levels where gas-fired plants with a 52pc efficiency are just competitive with a 39pc-efficient coal-fired plant.</p><p>The NBP fourth-quarter 2018 market closed 2.7p/th below the fuel-switching price on Wednesday, out from 1.8p/th a day earlier.</p><p>Coal-fired generation was limited in October and fell in the fourth quarter from a year earlier. The NBP day-ahead averaged just under a 10p/th discount to the fuel-switching price — at which a 39pc-efficient coal-fired plant would be competitive with a 55pc-efficient gas-fired unit — in the period, although it switched to a premium on four days in mid-December during the Forties Pipeline System halt that curbed UK production.</p><p>And it may only need to step up again in the fourth quarter if there is particularly cold weather or a similar supply disruption. But with coal-fired output only 3.5GW last October-December — and 3.2GW excluding the FPS shutdown on 11-27 December — there is little left for gas-fired generation to displace.</p><p>Power-sector gas burn had jumped in 2016 when coal was largely displaced from the generation mix.</p><p>But gas-fired generation fell last winter because of <a href="https://direct.argusmedia.com/newsandanalysis/article/1707380">rising wind capacity additions</a> and higher French nuclear availability increasing UK electricity imports.</p><p>Higher installed wind capacity could further pressure thermal generation this winter.</p><p>Offshore wind capacity — practically all of which is metered by the grid — rose to 7GW in October-December from 5.3GW a year earlier, and will likely start this winter at around 7.8GW as a number of projects <a href="https://direct.argusmedia.com/newsandanalysis/article/1699604">are finalised</a> this summer.</p><p>Onshore wind capacity — much of which is embedded — was 13.4GW in January-March, up from 12.8GW in the fourth quarter, and 10.9GW in October-December 2016.</p><p><div class="picture"><div><span class="pic_title">NBP fourth-quarter 2018 continues lower</span> <span class="units">p/th</span></div><img src="https://argus-public-assets-us.s3.amazonaws.com/2018/07/11/20180711eng_random211072018054731.jpg"></div></p><p><div class="picture"><div><span class="pic_title">NBP August-October spread widens</span> <span class="units">p/th</span></div><img src="https://argus-public-assets-us.s3.amazonaws.com/2018/07/11/20180711eng_random1a11072018054731.jpg"></div></p><p><div class="picture"><div><span class="pic_title">Wind capacity additions grow</span> <span class="units">GW</span></div><img src="https://argus-public-assets-us.s3.amazonaws.com/2018/07/11/windcapacityadditionsgrow11072018033910.jpg"></div></p><p><div class="picture"><div><span class="pic_title">Selected UK power generation</span> <span class="units">GW</span></div><img src="https://argus-public-assets-us.s3.amazonaws.com/2018/07/11/thermalpowergenerationfalls11072018033925.jpg"></div></p><p><div class="picture"><div><span class="pic_title">French, German, Dutch stocks excluding Norg</span> <span class="units">TWh</span></div><img src="https://argus-public-assets-us.s3.amazonaws.com/2018/07/11/french,german,dutchstocksexcludingnorg11072018033937.jpg"></div></p><p><div class="picture"><div><span class="pic_title">NBP 4Q18 follows up fuel-switching price</span> <span class="units">p/th</span></div><img src="https://argus-public-assets-us.s3.amazonaws.com/2018/07/11/nbp11072018034004.jpg"></div></p></article>
