Abstract
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 of this report
- 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.
Research and analysis highlights
Winter 2007/08 outlook is positive and holds no surprises
European Emissions Trading Scheme (ETS) 2007/08 is gathering momentum
Northwest European power prices are showing mixed messages
Key reasons to read this report
- 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
- CATALYST
- SUMMARY
- ANALYSIS
- Winter 2007/08 outlook is positive and holds no surprises
- The unusually mild weather has played its part in reducing the need for heaters
- UK gas supplies are buoyant as new infrastructure comes online and flows increase
- LNG: Norway and IUK are the UK' s key import facilities and have been increasingly on call since the UK became a net importer of gas in 2005
- The availability of generation capacity also looks strong as the power sector shrugs off 2006/07 uncertainties
- Rough storage will reach 100% capacity ahead of time, by Q3 2007
- Gas prices are expected to reflect the stable conditions this winter in contrast to previous years
- The power curve is also stable and no shocks are in store for traders or customers alike
- Facilitating the changes has been a challenge during 2007 on the medium- and short-range storage positions
- Emissions trading gathers momentum in the EU
- The Kyoto Protocol envisaged global carbon emissions trading
- EU member states are the key Kyoto Protocol signatories
- The UK has escaped an EC clampdown on Phase II allocations
- Trading volumes increase significantly as the Phase I - Phase II spread illustrates efficiency
- Wholesale and retail interface: price setting is complex and fortunes vary among suppliers
- Tailored risk management strategies (1) - the ' cap' provides cover for those buyers with an aversion to market exposure
- Risk management strategies (2) - the collar is a more flexible product aimed at suppliers with a riskier approach
- Complexities in buying on the forward curve are illustrated by comparing the short and far end of the forward curve
- A breakdown of the average household bill shows that wholesale costs make up the most significant portion
- Prices reach 2005 levels as security of supply and gas infrastructure ease fears of a shortage
- Wholesale and retail price differential indicates that margins are available at first glance
- Northwest European power prices showed mixed signals
- Belgian power prices are diverging on the short and near curves
- French near-end contracts switched direction as monthly prices outstripped winter 2007/08 expectations
- In contrast to regional sentiment, the German power market showed a slow downward turn on all contracts
- Bearish sentiment dominated the Dutch power market as contracts fell across the board
- UK baseload power prices showed resilience, highlighting the most stable period of trading for almost a year
- The NBP led the way as northwest European gas prices turned downwards
amid high confidence
- UK gas prices turned downwards as fundamental demand and supply conditions aided low UK gas prices
- Dutch gas prices followed the NBP trend as short and long ends of the curve resulted in falling prices
- Belgium gas contracts followed the pan-European trend of falling prices
- Winter 2007/08 outlook is positive and holds no surprises
- 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: Unusually cold weather has not been forecast for winter 2007/08
- Figure 2: The minimum temperature, month-on-month, has been rising over the last three years
- Figure 3: Importation and supply infrastructure have increased the flow of gas to the UK, an improvement on winter 2006/07
- Figure 4: The growth in import reliance has been well supported by Norwegian gas infrastructure
- Figure 5: Daily gas flows from the UK are facilitated by reverse/forward flows from Belgium via IUK
- Figure 6: Daily gas flows from the UK are facilitated by reverse/forward flows from Belgium via IUK
- Figure 7: Rough storage: the UK' s largest long-range storage facility is set to reach full capacity by autumn 2007, in time for the winter ahead
- Figure 8: Rough storage: the UK' s largest long-range storage facility is set to reach full capacity by autumn 2007, in time for the winter ahead
- Figure 9: TypeFigTitleHere
- Figure 10: Pricing expectations from January 2007 show the forward curve in stable form
- Figure 11: Pricing expectations from January 2007 show the forward curve in stable form
- Figure 12: Pricing expectations from January 2007 show the forward curve in stable form
- Figure 13: Pricing expectations from January 2007 show the forward curve in stable form
- Figure 14: Pricing expectations from January 2007 show the forward curve in stable form
- Figure 15: Pricing expectations from January 2007 show the forward curve in stable form
- Figure 16: Pricing expectations from January 2007 show the forward curve in stable form
- Figure 17: Exposure to the vagaries of the free market can be avoided by locking in to a semi-fixed contract such as the cap product
- Figure 18: The collar allows prices to fluctuate between a floor and a ceiling limit for customers with a more flexible budget
- Figure 19: Buying ahead can be used to hedge the level of risk faced, in order to serve customers' energy needs on a rolling basis
- Figure 20: A breakdown of the average household gas and electricity bill reveals the various components that suppliers have to cost
- Figure 21: Wholesale gas prices show stability and present opportunities to those willing to speculate on the short-term market
- Figure 22: Although low wholesale power prices suggest that there is room for maneuver, the picture is more complex
- Figure 23: Northwest European prices show mixed signals
- Figure 24: Belgian power prices rebounded on month-ahead contracts as quarterly prices fell
- Figure 25: French quarterly prices took an abrupt downward turn as month-ahead contracts rose from June
- Figure 26: German power prices looked on stable form, despite a slight fall in the quarter-ahead price, in contrast to the previous month' s swings
- Figure 27: Year, month and quarterly contracts fell this month in Holland as a bearish sentiment to prices prevailed
- Figure 28: UK contracts on both the short and far end of the curve highlighted price stability and halted the bearishness of H1 2007
- Figure 29: The NBP leads the way as northwest European gas prices turned downwards amid high confidence
- Figure 30: Uncertainty regarding the UK' s security of supply for winter 2007/08 has been eliminated
- Figure 31: Dutch gas curves also illustrate a bearish pattern similar to that of the UK and the Title Transfer Facility (TTF)
- Figure 32: Gas prices at Zeebrugge all turned downwards, as Europe-wide confidence in gas supply and demand balances returned
- Figure 33: Energy pricing proposition
- Figure 34: Generation spread methodology
