Abstract
Overview
Introduction
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
The Dutch TTF spread is narrowing as the NBP' s premium value is eroded over
time.
Oil prices saw a meteoritic rise as geopolitics skewed the fundamentals.
Near-end baseload prices dipped in May due to bearish power trading on the
Month-Ahead contract.
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
Table of Contents
- DATAMONITOR VIEW
- ANALYSIS
- The Dutch TTF spread is narrowing as the NBP' s premium value is eroded
over time
- A consistently narrow differential over time characterizes the NBP and
Zeebrugge gas markets
- The close proximity of the UK and Belgian gas hubs has given little
scope for arbitrage
- The NBP contract spreads show the range and depth in trading both spot
and forward products
- Seasonal summer contracts show a propensity for narrow spreads over time
- Short-run supply-side factors are not responding quickly enough to the
market' s demands
- Oil market fundamentals are dynamic, with supply-side effects difficult
to model accurately
- Oil price inflation has been phenomenal and continues to super-peak
- The long-term consolidation of oil prices is not good news for
consumers or producers, as inflation is set to continue
- Oil price expectations of supply have pushed up the futures curve,
revealing the change in sentiment and market outlook
- Spreads between products change over time and reflect the nature of
demand-pull factors, such as the driving season in the US
- Spreads between products change over time and reflect the nature of
demand-pull factors, such as the driving season in the US
- Inventories and stocks for gasoline products will be a key factor as
the driving season starts in the US
- Inventories and stocks for gasoline products will be a key factor as
the driving season starts in the US
- A closer inspection of oil prices, in historical context,reveals the
magnitude of the 2007/08 spike
- A closer inspection of oil prices, in historical context,reveals the
magnitude of the 2007/08 spike
- Reserves data shows a decline in overall world production,however,
peak oil theory is a highly unlikely outcome
- Consumption patterns show a gradual rise that will not worry
forecasters and supply-side analysts
- Production and consumption woes will diminish through the course of
2008/09
- Near-end baseload prices dipped in May due to bearish power trading on
the Month-Ahead contract
- As Belgian Month-Ahead prices fell, most other contracts firmed going
further out on the curve
- French power prices climbed higher through April, with the exception of
Month-Ahead prices
- German baseload power curves firmed going out and fell at the near end
- Dutch power prices firmed, particularly on the Quarter-Ahead contract
- UK baseload power prices firmed, with Month-Ahead peaking
- Bullish gas contracts continued to firm across Europe
- Gas contracts at the NBP are close to reaching long-term highs
- Holland' s TTF gas market replicated the bullish sentiment currently
prevailing in European markets
- Tightness and market sentiment firmed prices at Zeebrugge
- APPENDIX
- This brief builds upon Datamonitor' s extensive pricing proposition
- Glossary
- This brief contains a number of industry standard terms
- Our analysis builds on other sources to provide greater insight
- Further Reading
- Extended Methodology
- We assess the profitability of fossil fuel plants across northwest Europe
- Our bespoke services can be tailored to your specific needs
- Ask the analyst
- Datamonitor consulting
- Disclaimer
- List of Figures
- Figure 1: UK-Dutch spreads illustrate the dynamics of cross-border trade
over the last 12 months, and the narrowing price differentials
- Figure 2: Spot and forward price spreads are virtually non-existent
between the NBP and Zeebrugge
- Figure 3: Comparatively, the geographic proximity of Bacton and Zeebrugge
provides price symmetry
- Figure 4: Minimum/maximum spreads between 2004 and 2008 illustrate a
broad range of speculation
- Figure 5: A comparison of minimum and maximum spreads between 2004 and
2008 is given below
- Figure 6: At present, oil supply is not adjusting quickly enough to
changes in demand, due to its inelastic nature and production constraints
- Figure 7: The dynamics and decomposition of supply and demand have become
opaque and difficult to estimate
- Figure 8: Oil prices are breaking records with soaring prices that look
set to continue during the second half of 2008
- Figure 9: Forecasters have adjusted the future price of oil as the recent
surge in prices has caused a significant realignment of prices going out
- Figure 10: Both the Nymex and ICE crude oil forward curves illustrate a
major shift in sentiment as production speculation is high
- Figure 11: Brent crude oil is at a premium to WTI crude oil
- Figure 12: Over time, crude oil spreads look set to meander and grow as
Brent and WTI part
- Figure 13: Total stocks for both oil and petroleum products are in
reasonable shape
- Figure 14: Gasoline stocks will be challenged through 2008' s peak demand
in driving season
- Figure 15: The short-term picture highlights the fact that 50% of
observations lie below $80/barrel
- Figure 16: In comparison to the short-term view, the long-term median
value is around $20/barrel
- Figure 17: Reserves point towards a gradual decline in line with
Indo-China economic growth and weaker-than-forecast global demand
- Figure 18: Tracking global oil consumption illustrates that although we
have seen a growth in demand
- Figure 19: The changing nature of the core demand and supply fundamentals
leads to uncertainty, volatility and speculative trading
- Figure 20: Near-end baseload prices dipped in May due to bearish power
trading on the Month-Ahead contract
- Figure 21: In the month to May, all Belgian baseload power prices firmed,
except Month-Ahead contracts, which softened
- Figure 22: French baseload prices took a slight dip at the near end,
despite significant firming further out
- Figure 23: The outlook in Germany was in line with the rest of Europe,
with near-end prices falling and longer-term strips firming
- Figure 24: The Dutch market showed the lowest levels of swing in
comparison to its European neighbors
- Figure 25: Indifferent to European power market movements, prices firmed
on the Month-Ahead in the UK, as well as on contracts going further out
- Figure 26: Bullish gas contracts continued to firm across Europe
- Figure 27: Contracts rose across the board at the NBP as bullish
sentiment reacted to both the oil price and European gas prices
- Figure 28: Dutch gas prices firmed, continuing the pattern since Q4 2007
of gas prices having a high degree of dependency on the oil price
- Figure 29: Zeebrugge gas prices shadowed the NBP and TTF,eliminating the
opportunity to arbitrage and illustrating the prevailing uncertainty
- Figure 30: Energy pricing proposition
- Figure 31: Generation spread methodology
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