NBP: drop in July, but market concerns
The average NBP price for July was €16.2/MWh ($6.4/MBtu), 3.6% less than the previous month and 37% less than the same month last year. The NBP was marked by relatively high volatility, around +/-10%. It fell to a low of €14.8/MWh ($5.9/MBtu) on 11 July before climbing to nearly €18/MWh ($7.0/MBtu) on 28 July. This increase coincided with rising tensions between Russia and the Western countries, with stiffer sanctions imposed by the US on 16 July and then by the Europeans on 28 July. However, it should be noted that pressure remains moderate for now. In fact, the NBP is significantly lower than it was during the past three summers (€21 to €26/MWh on average).
Future trends remain very uncertain given the many possible scenarios regarding Ukraine (whether or not gas transit via Ukraine will be impacted, Russian exports disrupted, etc.). Relative to the beginning of July, the market is gradually adjusting the trends for the coming months upwards, particularly for the winter. Future prices are now around €27/MWh from December to next March.
The average NBP price in June stood at €16.8/MWh (US$6.7/MBtu), down 12% on the previous month and down 31% compared with the same month last year. The price of NBP is at its lowest since mid-2010 – and is now cost-competitive with coal in the electricity sector. This means equivalent production costs, factoring in the price of CO2 at €6/tonne, as well as the Carbon Price Support (CPS) effect. Introduced in April 2013 (at £4.9/TCO2), it has been at £9.5/TCO2 since April, significantly increasing the cost of using coal to generate electricity. The cost increase is around €11/MWh, as opposed to €4/MWh for a gas-fired power plant.
The last 14 months since the Cedigaz long-term-contracts database (1) was last updated has shown a continuation of the wave of renegotiations that has gained momentum since 2010, recently culminating with the announcement by ENI of its agreement with Gazprom. The deal, which reduces both the price and take-or-pay obligation of contracted gas, has been hailed by the gas community has signaling a move away from oil-indexation by the Russian gas giant. Based on ENI’s declarations some analysts contend that the gas is now 100% hub indexed. According to Argus Media, the actual arrangement is more subtle, the pricing formula would still be oil-based but would include a price corridor based on TTF prices.