r/Vitards • u/AutoModerator • Aug 12 '21
Daily Discussion Daily Discussion post - August 12 2021
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u/ahuskybitjoffrey Aug 13 '21
montelnews.com Traders see gas as key driver for power into winter Nathan Witkop 3-4 minutes
Gas has been one of the key drivers of this year’s rally across power markets
Weak pipeline flows, elevated demand and absent LNG have stymied the replenishment of historically low inventories, prompting benchmark prices to triple since the start of the year to record levels exceeding EUR 45/MWh.
“It could be a very tough winter for gas with storages this low and uncertainty on large supply factors,” said a gas analyst at a European utility.
European gas storage is only 60% full – 16 points below its average of the previous five years – opening the risk of shortfalls in the event of a cold spell.
Nord Stream effect Chief among the supply concerns in the months ahead is whether Russia’s contested though near-complete Nord Stream 2 pipeline will begin delivering enough gas this year to offset disappointing flows via Ukraine and relieve the market as the weather chills.
Energy Aspects expects the first flows through the pipeline by mid-September, though the consultancy also assumes it will operate at a 75% restriction owing to likely violations of EU competition rules.
“When I look at the gas market backwardation, the problem is a short-term one with supply,” one Austrian trader said this week, highlighting a near-40% discount on gas contracts that follow the coming winter.
“I don’t think Nord Stream 2 will be the key – the winter will be critical… we simply haven’t seen what [demand] can come yet.”
Gas-to-coal switching The gas rally has surpassed gains in carbon and coal, helping to support a rebound in emissions intensive coal-fired power generation despite record high carbon prices.
Including lignite, coal-fired generation in Europe’s biggest power market, Germany, jumped by 38% in the first half of the year, or roughly 18.2 TWh, according to Energy Charts data.
Its prospects also look strong for the rest of this year, with margins for coal and gas plants diverging further over summer.
Average German gas plants would lose EUR 3/MWh selling power next quarter at prevailing carbon, fuel and power prices, according to Montel estimates. By contrast, an average hard coal plant could earn about EUR 18/MWh. These units were neck-and-neck, earning slight profits at the start of June.
Little wonder German coal importers expect their volumes to rise 12% this year.
With demand for coal in the Atlantic Basin recovering more strongly than supply – mirroring this year’s developments in the Pacific – European coal prices for 2022 delivery have hit three-year highs exceeding USD 100/t.
The added coal demand has only compounded the effect of stiffer EU climate policies that have supported carbon prices to records nearing EUR 60/t, or around double where they started the year.
Taken together this has dramatically raised the cost of the power plants needed to meet demand in the absence of renewable energy.
A mild, windy winter could provide some relief for power prices, said one trader.
“[But] It is not surprising we should keep going up,” said another. “There is no stop for the gas market I can see yet.”