Welcome to BP's European Gas and Power (EGP) market update where we highlight the most recent trends in gas prices, forward curves, power spreads, storage, flows and the outlook ahead.
Latest from BP Group
EGP business insights
BP’s North Sea Rhum gas field sale to Serica advances. This month Serica stated that they have received assurances and a new conditional licence from the US Office of Foreign Assets Control (OFAC) which ensures that production from the Rhum field can continue. that Subject to fulfilment of the conditions, non-US entities providing goods, services and support will not be exposed to secondary sanctions which had brought the asset sale into jeopardy. Shale gas fracking operations have begun in Lancashire, UK. A High Court ruling on Friday (12th October) ruled against environmental campaigners and in favour of allowing operations to begin at the Preston New Road Site near Blackpool. The shale gas volumes are expected in the first quarter of 2019
In the event of a ‘no deal’ Brexit, a UK government report stated that the UK would likely be removed from the EU Emissions trading Scheme. However, it is expected that the UK government will continue to maintain the existing carbon pricing commitment through a ‘tax system’ which would mirror the current EU Emissions Trading Scheme and have a floor price inline with the current £18/tonne level. This month the Spanish Minister of Energy Transition announced that there would be a six month suspension of the 7% generation of power tax and also on the ‘gas fuel tax’. Both measures come in light of recent 10 year high Spanish power prices, in an attempt to reduce whole prices which will be passed onto domestic customers.
Commodities strength continues
Strength in the wider commodity complex and a tight LNG market has supported gas and LNG prices, whilst carbon has now levelled off at around €20/mt. JKM continues to be particularly strong although weaker sentiment in the prompt has brought Dec, Jan and Feb JKM swaps contracts back below oil parity.
Elevated hub prices and volatility
Additional fundamental tightness in gas and LNG markets has pushed the mid-term curve into stronger backwardation. The Cal-2019 – Cal-2020 spread at TTF has increased from €0.92/MWh six months ago to €2.20/MWh currently.
Rising cost of coal supports gas prices
The rising cost of coal fired power generation is giving support to gas fired power generation and keeping gas demand buoyant. Following the upward trend in EUAs, coal has climbed significantly this year to trade around the $95-100/t range, adding to the European gas rally
German spark spread retracts to negative territory
Power prices in Germany continue to climb on the back of strength in coal and European gas. Since May 2018 there has also been an upward trend in both spark and dark spreads, however September saw the German clean spark spread retract to -€2.47/MWh whilst the clean dark spread remained positive.
Reflecting on the hot summer
Temperatures across Europe hit record highs in 2018, meaning cooling degree days were significantly above average. Dutch cumulative CDDs were 91% higher than 2017 and 23% above the historical 2002-2016 range, which is indicative of the high temperatures felt across NWE. Whilst this supported power demand for cooling over the summer, temperatures in September dialled back and the focus now shifts to HDDs for the winter.
Lower seasonal demand in the East has seen the JKM-TTF spread narrow to less than $2/MMBtu from $2.80/MMBtu in August. In addition, shipping rates have been reported as high as $180k/d, which resulted in more cargoes coming into Europe in September. However, with terminals at full stocks European send-outs remain high. In particular, send-outs rose 3.4mcm/d month on month in the Netherlands and 4.4mcm/d in Italy.
Russian pipeline supply remains high
Following the seasonal maintenance which added support to prices over the summer, Russian pipeline flows into Europe are back on their higher trend which has now been sustained for 12 months. This is reflected in the Nord Stream pipeline flow, which is indicative of total Russian flow.
Storage injections continue into October
Seasonally low demand and strong LNG send-outs have seen European storage injections continue into October. The year on year deficit now stands at 1.47 bcm, down from 4.2 bcm last month.
Germany and Netherlands catch up
Storage injections have increased across the board, with the year on year deficit narrowing for both Germany and Netherlands as pipelines come out of maintenance season. French storage continues its strong growth and is now 1.72 bcm higher year on year.
This update and its contents have been provided to you for informational purposes only. This information is not advice on or a recommendation of any of the matters described herein or any related commercial transactions, whether they consist of physical sale or purchase agreements, financing structures (including, but not limited to senior debt, subordinated debt and equity, production payments and producer loans), investments, financial instruments, hedging strategies or any combination of such matters and no information contained herein constitutes an offer or solicitation by or on behalf of BP p.l.c. or any of its subsidiaries (collectively “BP”) to enter into any contractual arrangement relating to such matters. BP makes no representations or warranties, express or implied, regarding the accuracy, adequacy, reasonableness or completeness of the information, assumptions or analysis contained herein or in any supplemental materials, and BP accepts no liability in connection therewith. BP deals and trades in energy related products and may have positions consistent with or different from those implied or suggested by this presentation. This presentation also contains forward-looking statements. Any statements that are not historical facts, including statements about BP’s beliefs or expectations, are forward-looking statements. These statements are based on plans, estimates and projections and you should not place undue reliance on them. These statements are not guarantees of future performance and involve certain risks and uncertainties, which are difficult to predict. Therefore, actual future results and trends may differ materially from what is forecast, suggested or implied in any forward-looking statements in this presentation due to a variety of factors. Factors which could cause actual results to differ from these forward-looking statements may include, without limitation, general economic conditions; conditions in the markets in which BP is engaged; behaviour of customers, suppliers, and competitors; technological developments; the implementation and execution of new processes; and changes to legal, tax, and regulatory rules. In addition, financial risks such as currency movements, interest rate fluctuations, liquidity, and credit risks could influence future results. The foregoing list of factors should not be construed as exhaustive. BP disclaims any intention or obligation to publicly or privately update or revise any forward looking statements, whether as a result of new information, future events, or otherwise. Any services to third parties referred to in this presentation concerning BP Risk Management or Structured Products are provided by Britannic Energy Trading Limited (BETL) which is authorised and regulated by the UK Financial Conduct Authority to provide certain investment services in the UK. Any investment services described herein are intended for only Eligible Counterparties or Professionals as those terms are defined by the UK Financial Services & Markets Act 2000 and the FCA Handbook, or only for Eligible Contract Participants as that term is defined in the U.S. Commodity Exchange Act.