Home > Market Research > Oil & Gas > European Gas and Power Price Fundamentals: Q2 2009 :: Datamonitor

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Published: May 2009
Pages: 88
Tables: For full details, please email keithw@cmsinfo.com
From: GBP 1746.88   Buy Now!
Research from: Datamonitor
Sector: Oil & Gas

The growing role of wholesale traded energy markets across Europe creates a greater need for players throughout the value chain to be aware of the latest market movements and developments. From the wellhead or power station gate to the end-user, volatility in the spot and forward price of power and gas is creating an increasingly challenging environment for all market participants.

Scope
An examination of the wholesale gas price trends in Europe's three key markets - the UK NBP, the Zeebrugge Hub and the Dutch TTF.
An assessment of traded power prices in the UK, Belgian, Dutch, German and French wholesale power markets.
Insight and analysis into the impact of wholesale markets on the wholesale / retail price interface.
Highlights
Q1 sees prices fall further as gas demand contraction takes immediate effect on the far end of the curve

Price spreads are a fundamental tool in assessing market sentiment in addition to supply and demand factors

Datamonitor's gas price outlook is bearish with the effects of demand contraction going out to 2013

Reasons to Purchase
Establish the current level of wholesale and retail energy prices and the fundamental drivers behind movements in the traded value of gas and power.
Understand how wholesale pricing impacts different facets of the value chain, identifying the potential to limit risk through hedging strategies.
Forecast future developments in the traded price of gas and power in order to successfully take advantage of arbitrage opportunities.

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Table of Contents

DATAMONITOR VIEW 1
CATALYST 1
SUMMARY 1
Executive price summary: Q2 2009 saw commodities tumble as financial market woes took a firm grip on the economy 2
Executive price summary: the prompt market is not immune to the Q2 commodity price destruction 3
Q1 2009 saw prices fall further as gas demand contraction took immediate effect on the far end of the curve 4
Prompt gas markets have also seen significant decreases in Day-Ahead prices 5
Baseload power prices continue to fall with the economic contraction 6
Prompt power prices were significantly lower during Q1 2009 7
Peaks power prices dipped in line with the reduction in consumption during Q1 8
Crude oil prices reacted to the economic downturn, but showed an upward movement through Q1 2009 9
The pound sterling continued to slide against the US dollar and the euro 10
The Emissions Trading Scheme produced low EU Allowances prices as carbon trading sank to new lows for the 2009 contract 11
Although the FTSE continued to decline, this was significantly less than a barrel of Brent crude 12
Despite the recession, coal contracts showed signs of stabilizing after heavy losses through 2008 13
Price spreads are a fundamental tool in assessing market sentiment in addition to supply and demand factors (1/2) 14
UK gas injections are in favor of stock-build as the economy shrinks 15
European storage is nearing capacity as bearish prices reflect the macro-fundamentals 16
UK gas storage is at a year-on-year high due to the reversal of NBP gas prices 17
Increased flows and storage data also explain the decline in EU wholesale prices 18
Annual spreads at the NBP on the quarterly product have been affected by volatile oil prices 19
Quarterly strips at the NBP explain year-on-year differentials and major changes in market sentiment 20
On average, the quarterly strip spread has grown since 2008 21
Quarterly strip spreads are also a good illustration of how price differentials impact business performance 22
The Quarter-Ahead differential is significantly favorable to 2009 buy-side trading 23
Seasonal strips concur and highlight the risks involved in buying too far ahead of delivery 24
Timing and volume risks are essentially driving the weighted average cost of gas 25
Day-Ahead price spreads at the NBP are most volatile, at any significant level, from the start of calendar Q1 26
Geographic spreads are tight, with no room to arbitrage via the EU gas hubs (1/2) 27
Gas consumption is on the up, despite the economic downturn 28
Monitoring spreads is important for commercial and regulatory reasons 29
Gas markets are in transition, with the future promising further liquidity (1/2) 30
Datamonitor's gas price outlook is bearish, with the effects of demand contraction going out to 2013 31
Datamonitor's gas price outlook is bearish, with the effects of demand contraction going out further than 2013 32
Datamonitor's power price outlook indicates that capacity is sufficient and the downturn will soften the forward curve 33
Datamonitor expects stability in peak-load pricing if the economic environment does not drastically alter 34
Datamonitor's power price outlook indicates that capacity is sufficient and the downturn will soften the forward curve 35
Wholesale gas and power prices 36
The NBP slid through Q1 as the gas market retreated in Europe 37
The TTF dipped at both ends of the curve during Q1 2009 38
Belgian gas prices softened in line with the fundamentals at the NBP and TTF 39
In light of eroding demand, UK power prices continued to soften 40
Dutch power markets softened significantly at both ends of the curve 41
Falling power prices were also evident in Belgium trading 42
French wholesale power prices softened with the rest of Europe 43
German power prices softened as demand contracted around northwest Europe 44
Retail gas and electricity prices 45
2008 was not a good year for UK gas prices, but Q1 2009 saw some reduction in end-user costs 46
UK suppliers will gradually pass on the NBP wholesale cost savings to domestic retail customers 47
Belgian retail gas bills illustrated a lagged fall during Q1 2009 48
Domestic and SME retail prices in Holland have only been cut once since May 2007 49
Austrian domestic retail gas customers have seen relatively static bills in comparison to industry customers 50
End-user Danish gas prices have shown co-movement in recent quarters, indicating systematic pass-through 51
The domestic retail gas price in Finland is one of the lowest in northwest Europe 52
French retail end-users have always enjoyed regulated tariffs 53
Retail prices in Germany illustrated downward responsiveness to Q3 2008 gas commodity prices 54
Italian industrial customers have recently seen their gas bills dip in line with EU commodity markets 55
Spanish retail customers have only recently seen fluctuations in their end-user gas prices 56
Retail gas prices in Switzerland are easily distinguished by segmentation 57
UK power prices have fallen significantly through Q4 2008 and Q1 2009, which will need to be reflected in end-user bills 58
UK suppliers have been slow to pass on cost savings from the wholesale to the retail market 59
Austrian power bills have illustrated a relatively flat trend over time 60
On average, Belgian households have faced rising power bills since mid-2007 61
The Dutch retail market is more responsive for domestic customers than non-domestic customers 62
German retail prices have shown only marginal increases, despite high wholesale prices 63
Regulated French tariffs will soon come under pressure from competition authorities to be more cost reflective 64
Denmark has seen further increases to its end-user bills, making them some of the highest in Europe 65
Finnish households pay more than twice the price that industrial and commercial customers pay for their power 66
Italian power prices have reduced significantly through Q1 2009 67
Spain shows one of the biggest differentials between household and industry power costs 68
Sweden's retail market benefits from its key nuclear power producer, Vattenfall 69
Switzerland's power prices are tightly spread for all users 70
APPENDIX 71
This brief builds upon Datamonitor's extensive pricing proposition 71
Glossary 72
This brief contains a number of industry standard terms 72
Our analysis builds on other sources to provide greater insight 74
Further Reading 74
Extended Methodology 74
We assess the profitability of fossil fuel plants across northwest Europe 74
Our bespoke services can be tailored to your specific needs 75
Ask the analyst 75
Datamonitor consulting 75
Disclaimer 75
List of Figures
Figure 1: Executive price summary: Q2 2009 saw commodities tumble as financial market woes took a firm grip on the economy 2
Figure 2: Executive price summary: the prompt market is not immune to the Q2 commodity price destruction 3
Figure 3: Q1 2009 saw prices fall further as gas demand contraction took immediate effect on the far end of the curve 4
Figure 4: Prompt gas markets have also seen significant decreases in Day-Ahead prices 5
Figure 5: Baseload power prices continue to fall with the economic contraction 6
Figure 6: Prompt power prices were significantly lower during Q1 2009 7
Figure 7: Peaks power prices dipped in line with the reduction in consumption during Q1 8
Figure 8: Crude oil prices reacted to the economic downturn, but showed an upward movement through Q1 2009 9
Figure 9: The pound sterling continued to slide against the US dollar and the euro 10
Figure 10: The Emissions Trading Scheme produced low EU Allowances prices as carbon trading sank to new lows for the 2009 contract 11
Figure 11: Although the FTSE continued to decline, this was significantly less than a barrel of Brent crude 12
Figure 12: Metrics 12
Figure 13: Despite the recession, coal contracts showed signs of stabilizing after heavy losses through 2008 13
Figure 14: Metrics 13
Figure 15: UK gas injections are in favor of stock-build as the economy shrinks 15
Figure 16: UK gas storage is at a year-on-year high due to the reversal of NBP gas prices 17
Figure 17: Annual spreads at the NBP on the quarterly product have been affected by volatile oil prices 19
Figure 18: Quarterly strips at the NBP explain year-on-year differentials and major changes in market sentiment 20
Figure 19: Quarterly strip spreads are also a good illustration of how price differentials impact business performance 22
Figure 20: Seasonal strips concur and highlight the risks involved in buying too far ahead of delivery 24
Figure 21: Day-Ahead price spreads at the NBP are most volatile, at any significant level, from the start of calendar Q1 26
Figure 22: Gas consumption is on the up, despite the economic downturn 28
Figure 23: Datamonitor's gas price outlook is bearish, with the effects of demand contraction going out to 2013 31
Figure 24: Datamonitor's gas price outlook is bearish, with the effects of demand contraction going out further than 2013 32
Figure 25: Datamonitor's power price outlook indicates that capacity is sufficient and the downturn will soften the forward curve 33
Figure 26: Datamonitor expects stability in peak-load pricing if the economic environment does not drastically alter 34
Figure 27: Baseload 35
Figure 28: Peaks 35
Figure 29: The NBP slid through Q1 as the gas market retreated in Europe 37
Figure 30: Metrics 37
Figure 31: The TTF dipped at both ends of the curve during Q1 2009 38
Figure 32: Metrics 38
Figure 33: Belgian gas prices softened in line with the fundamentals at the NBP and TTF 39
Figure 34: Metrics 39
Figure 35: In light of eroding demand, UK power prices continued to soften 40
Figure 36: Metrics 40
Figure 37: Dutch power markets softened significantly at both ends of the curve 41
Figure 38: Metrics 41
Figure 39: Falling power prices were also evident in Belgium trading 42
Figure 40: Metrics 42
Figure 41: French wholesale power prices softened with the rest of Europe 43
Figure 42: Metrics 43
Figure 43: German power prices softened as demand contracted around northwest Europe 44
Figure 44: Metrics 44
Figure 45: 2008 was not a good year for UK gas prices, but Q1 2009 saw some reduction in end-user costs 46
Figure 46: UK suppliers will gradually pass on the NBP wholesale cost savings to domestic retail customers 47
Figure 47: Belgian retail gas bills illustrated a lagged fall during Q1 2009 48
Figure 48: Domestic and SME retail prices in Holland have only been cut once since May 2007 49
Figure 49: Austrian domestic retail gas customers have seen relatively static bills in comparison to industry customers 50
Figure 50: End-user Danish gas prices have shown co-movement in recent quarters, indicating systematic pass-through 51
Figure 51: The domestic retail gas price in Finland is one of the lowest in northwest Europe 52
Figure 52: French retail end-users have always enjoyed regulated tariffs 53
Figure 53: Retail prices in Germany illustrated downward responsiveness to Q3 2008 gas commodity prices 54
Figure 54: Italian industrial customers have recently seen their gas bills dip in line with EU commodity markets 55
Figure 55: Spanish retail customers have only recently seen fluctuations in their end-user gas prices 56
Figure 56: Retail gas prices in Switzerland are easily distinguished by segmentation 57
Figure 57: UK power prices have fallen significantly through Q4 2008 and Q1 2009, which will need to be reflected in end-user bills 58
Figure 58: UK suppliers have been slow to pass on cost savings from the wholesale to the retail market 59
Figure 59: Austrian power bills have illustrated a relatively flat trend over time 60
Figure 60: On average, Belgian households have faced rising power bills since mid-2007 61
Figure 61: The Dutch retail market is more responsive for domestic customers than non-domestic customers 62
Figure 62: German retail prices have shown only marginal increases, despite high wholesale prices 63
Figure 63: Regulated French tariffs will soon come under pressure from competition authorities to be more cost reflective 64
Figure 64: Denmark has seen further increases to its end-user bills, making them some of the highest in Europe 65
Figure 65: Finnish households pay more than twice the price that industrial and commercial customers pay for their power 66
Figure 66: Italian power prices have reduced significantly through Q1 2009 67
Figure 67: Spain shows one of the biggest differentials between household and industry power costs 68
Figure 68: Sweden's retail market benefits from its key nuclear power producer, Vattenfall 69
Figure 69: Switzerland's power prices are tightly spread for all users 70
Figure 70: Energy pricing proposition 71
Figure 71: Generation spread methodology 74

For full details, please email keithw@cmsinfo.com

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