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

Publication Date	May 2008
Publisher	Datamonitor
Product Type	Report
Pages	25
ISBN Number	not applicable
Product Code	DAT12079

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Summary

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

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.

Highlights

UK regulator Ofgem is investigating potential market abuse Power prices rebounded in April as tighter supply conditions took effect Northwest European gas prices continued to rise amid oil fears

Reasons to Purchase

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.

Content

Catalyst
Summary
Analysis
- Ofgem launched a probe into the supply market, as pricing and market power issues are allegedly failing to deliver to customers
  - The UK power sector's HHI reflects the high levels of concentration that have evolved over time
  - There is a strong correlation between Centrica's loss of market share and a falling HHI
  - Forward pricing is inherently complex and often too opaque for regulators to disseminate company portfolios
  - The price spread between long and short portfolios can change in a matter of months
  - The weighted average cost of gas flips from a short to long-term strategy
  - SSE's hedging strategy has paid off, despite its structural disadvantage in gas, and rising wholesale costs
  - Energy tops the UK's political agenda, with increased regulatory and policy action planned during 2008
  - Challenges lie ahead for UK competition authorities and suppliers
- Power prices rebounded in April as tighter supply conditions took effect
- Belgian power contracts all rose, as price expectations were decidedly bullish over the previous month's trading
  - French power prices reacted sharply to power auctions and continued to firm
  - German power contracts firmed during Q1, going out and the near-end of the curve
  - Dutch wholesale power prices, which typically follow German sentiment, continued to rise
  - In tandem with the rest of Europe, baseload prices firmed in the UK
- Northwest European gas prices continued to rise amid oil fears
  - Contracts at the NBP were bullish, in stark contrast to mid-Q1 data, which showed signs of softening
  - Aggressive Dutch and oil-indexed gas prices pushed up contracts across the board
  - Zeebrugge matched the NBP and firmed compared to Q1 2008
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: Observers are concerned that, since privatization, the HHI has been increasing in the power sector
  - Figure 2: Despite a fall in Centrica's monopoly status, the absolute levels of gas sector HHI are still above 3,000
  - Figure 3: Gas spot outturn prices versus the forward curve illustrate the risks of wholesale procurement
  - Figure 4: Backwardation and contango are evident in the gas wholesale market, with prices at the near-end of the curve now at a premium
  - Figure 5: Hedging well ahead of time could pay off, as the Year-Ahead contract premium is diminishing over 2007 spot weighted portfolios
  - Figure 6: SSE's share price has outperformed its key utility sector competitors
  - Figure 7: Power prices rebounded in April as tighter supply conditions took effect
  - Figure 8: The key benchmark power contracts all increased during March as bullish power sector sentiment persisted
  - Figure 9: French baseload power prices continued their upward trajectory, with little sign of slowing down
  - Figure 10: Power curves in Germany firmed consistently through Q1 in complete contrast to 2007
  - Figure 11: Dutch baseload power contracts shadowed the German power market and illustrated the same pricing anomalies
  - Figure 12: The UK's power markets appeared to be no different from those of its EU counterparts - contracts firmed more notably at the near-end
  - Figure 13: Northwest European gas prices continued to rise amid oil fears
  - Figure 14: Prices at the NBP took a bullish turn and have continued to rise since February despite the warmer weather
  - Figure 15: Oil-influenced price at the TTF rose significantly, particularly at the far-end of the curve on Year-Ahead contracts
  - Figure 16: Gas prices at the Zeebrugge hub ensured little opportunity for traders to arbitrage prices matched those at the NBP
  - Figure 17: Energy pricing proposition
  - Figure 18: Generation spread methodology