Monthly Price Brief - A Review of European Gas and Power Price Trends: September 2008

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.

Report Highlights
EU-ETS trades, on average, around EUR25/metric tonne over the 2007/08 period.

Crude oil retreats amid global financial crisis and speculators exit and close positions.

At the prompt end power prices are rising in Europe, except in the UK where Month-Ahead dips.
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DATAMONITOR VIEW 1
CATALYST 1
SUMMARY 1
ANALYSIS 2
EU-ETS trades, on average, around €25/metric tonne over the 2007/08 period 2
Belgian clean spark and dark spreads are relatively stable through 2008 despite growing environmental concerns 3
Revised EUA permits for Phase 2 of EU-ETS show the switch in profitability from switching to gas fired plant in Germany 4
Clean generation spreads in Holland match those in Germany with gas becoming more cost effective in light of ETS 5
The differential between UK's clean spark and dark is widening 6
Crude oil retreats amid global financial crisis and speculators exit and close positions 7
Expectations going out to 2015 soften as credit crisis and uncertainty impact on the oil market 8
At the prompt end power prices are rising in Europe, except in the UK where Month-Ahead dips 9
The Belgian power market is bullish in the short-term but further out prices soften 10
French power traders are bearish going out on the curve 11
German baseload contracts firm near-side and soften out on the curve 12
Dutch baseload prices softened on the Year-Ahead and Quarter-Ahead 13
UK power contracts softened on the Month-Ahead signaling a milder Q3 than expected 14
Spot gas prices continue to fall across the board as crude prices take a downward reversal 15
NBP gas contracts dipped highlighting the bearish sentiment currently prevailing in commodities 16
Downward pressure on Dutch gas prices indicative of supply and demand highlights a decidedly bearish tone at the TTF 17
Zeebrugge gas contracts softened over the month of August - like the major gas hubs eliminating any arbitrage opportunities 18
APPENDIX 19
This brief builds upon Datamonitor's extensive pricing proposition 19
Glossary 20
This brief contains a number of industry standard terms 20
Our analysis builds on other sources to provide greater insight 22
Further Reading 22
Extended Methodology 22
We assess the profitability of fossil fuel plants across northwest Europe 22
Our bespoke services can be tailored to your specific needs 23
Ask the analyst 23
Datamonitor consulting 23
Disclaimer 23
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Figure 1: EU-ETS trades, on average, around €25/metric tonne over the 2007/08 period 2
Figure 2: Despite tighter carbon emissions targets set by the EC the clean spark-clean dark differential has remained relatively static 3
Figure 3: Power generator able to change inputs from coal to gas in the German market will profit from flexible fuel switching 4
Figure 4: The second phase of the emissions trading scheme take effect through April 2008 5
Figure 5: A widening gap between clean dark and spark generation is emerging since the start of Phase 2 6
Figure 6: Crude oil retreats amid global financial crisis and speculators exit and close positions 7
Figure 7: The crude oil forward curve has shifted significantly over the past 12 months as the front end movements have reached new highs 8
Figure 8: At the prompt end power prices are rising in Europe, except in the UK where Month-Ahead dips 9
Figure 9: Both Quarter and Year-Ahead contracts soften with greater concern for September as Month-Ahead firmed 10
Figure 10: Further out on the forward curve power contracts traded at a discount to August whilst Month-Ahead firmed 11
Figure 11: German baseload contracts reflected the mood through the rest of northwest Europe firming mainly on the prompt end of the curve 12
Figure 12: Power contracts in Holland reflect bullish sentiment typically reserved for tighter short-term capacity 13
Figure 13: UK power traders took a bearish view on power demand as warmer temperatures in Q3 softened prices 14
Figure 14: Spot gas prices continue to fall across the board as crude prices take a downward reversal 15
Figure 15: UK gas prices are reflecting fundamentals as higher temperatures and ample supply in storage 16
Figure 16: The Title Transfer Facility downturned on gas contracts at both the prompt and far end of the gas curve 17
Figure 17: Zeebrugge, NBP and TTF typically moved in the same direction as fundamentals vary little between the three hubs 18
Figure 18: Energy pricing proposition 19
Figure 19: Generation spread methodology 22
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