Monthly Price Brief - A Review of European Gas and Power Price Trends: October 2007

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, volatilit

Report Highlights
The EU's third package of energy reforms proposes limited opportunities for new investment Infrastructure and storage positions are not a worry for either the UK or its European counterparts Northwest European power markets continued to rally through Q3
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DATAMONITOR VIEW 1
CATALYST 1
SUMMARY 1
ANALYSIS 2
The EU's third package of energy reforms proposes limited opportunities for new investment 2
The EU's third package of energy reforms proposes limited opportunities for new investment 3
Unresolved issues will be the key to achieving a successful single European energy market 4
The majority of TSOs are affiliated to a vertically integrated utility 6
Limits to network ownership have struck a raw chord with foreign investors 7
UK gas transmission charges account for a small percentage of end user bills 8
Cross-subsidization of network charges is a feature of European markets 9
Domestic power prices illustrate a positive but weak relationship 10
Large industrial prices for power customers are spread roughly around the sector average 11
Localized distribution companies far outnumber national transmission regimes 12
Localized distribution companies far outnumber national transmission regimes 13
Infrastructure and storage positions are not a worry for either the UK or its European counterparts 14
Infrastructure and storage positions are not a worry for either the UK or its European counterparts 15
Strategic European storage projects are not far behind the UK 15
Pipeline investment will increase capacity this winter, confirms UK energy regulator Ofgem 17
LNG projects are a priority in off-setting long-term concerns over security of supply 18
Private investment in LNG is evident from the major European suppliers 19
The Bacton-Zeebrugge interconnector acts as a bridge to European gas shippers 20
Strong LNG injectability reduces the tightness in UK gas supply 21
Total UK gas stocks are significantly higher than in 2006 22
The demand side response has been positive as consumption falls 23
Northwest European power markets continued to rally during Q3 24
Belgian power prices illustrated sustained stability this autumn 25
Short-term French baseload prices rose as month ahead contracts gained significantly over last month 26
Near-end instability in the German market highlights NW European price interdependence 27
Dutch power curves broke the NW Europe trend as prices fell 28
UK power prices showed bullish form as prices continued to rise 29
Gas prices rose as traders voiced concerns over winter 2007/08 30
NBP gas prices took an upward turn at the end of Q3 31
Near-end gas prices rose at the TTF with Brent crude indexation 32
The spot price pushed upwards as oil speculation impacted upon wholesale gas trading 33
APPENDIX 34
This brief builds upon Datamonitor's extensive pricing proposition 34
Glossary 35
This brief contains a number of industry standard terms 35
Our analysis builds on other sources to provide greater insight 37
Further Reading 37
Extended Methodology 37
We assess the profitability of fossil fuel plants across northwest Europe 37
Our bespoke services can be tailored to your specific needs 38
Ask the analyst 38
Datamonitor consulting 38
Disclaimer 38
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Figure 1: The independence of transmission systems 6
Figure 2: Network charges typically account for a small portion of the household domestic bill (October 2007) 8
Figure 3: Large industrial pricing and low network tariffs are the result of government subsidies to transmission operators (October 2007) 9
Figure 5: The UK is anomalous to the indicative grid access and end user bill relationship (October 2007) 10
Figure 5: Large power users benefit from lower network charges that feed through to lower end-user bills (October 2007) 11
Figure 6: Germany counts the highest number of power distribution companies due to its regional nature 12
Figure 7: European gas transmission and distribution numbers are stable, with the exception of Italy and Spain 13
Figure 8: Most EU member states are preparing for the shortfall in indigenous gas supplies by investing in LNG 18
Figure 9: Investment in adding capacity to LNG projects is at the forefront of energy companies' business plans 19
Figure 10: Price signals and cross-border gas imports work in tandem to fulfill any shortfall in supply 20
Figure 11: The UK's regassification plants bring supply stability and reduce gas market uncertainty in the long-term 21
Figure 12: Higher UK gas stocks alleviate the pressure as winter 2007/08 approaches 22
Figure 13: A year-on-year comparison illustrates that mild and seasonally low temperatures can be reflected on the gas demand side 23
Figure 14: Northwest European power markets continued to rally during Q3 24
Figure 15: Belgian wholesale power prices firmed a touch on the near end of the curve as quarterly and annual prices continued to plateau 25
Figure 16: Near-end prices gained on last month's for quarter ahead and significantly more for month ahead 26
Figure 17: The near-end of the German power curve characteristically followed the NW European market, as month ahead contracts rose sharply 27
Figure 18: Dutch power prices continued to fall this month for Quarterly and Year-Ahead contracts, the Month-Ahead price rose 28
Figure 19: The approach to winter 2007/08 has been illustrated by the UK's power curves rising at both ends 29
Figure 20: Gas prices rose as traders voiced concerns over winter 2007/08 30
Figure 21: In line with seasonal expectations, gas prices in the UK upturned in the first months of Q4, most notably in the month ahead contract 31
Figure 22: NW European gas producers experienced a sharp rise in prices due to current global oil uncertainties 32
Figure 23: Belgian spot contracts took a sharp rise, diverging from fundamentals as a result of oil market indexation 33
Figure 24: Energy pricing proposition 34
Figure 25: Generation spread methodology 37
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