The fall in the price of NBP which began in December (-45%!) is continuing (an 8% fall in May compared with the previous month) and even picked up the pace in June: an 8% fall between 30 May and the current €16.4/MWh (US$6.5/MBtu) listings. This means that the price of NBP is approaching the competitive price for coal – an estimated €14/MWh (US$5.6/MBtu) based on a level of €55/tonne for coal (€61/tonne in 2013) and €5.4/tonne for CO2. This price correction can be attributed to several factors, including the extension granted until 10 June to find an agreement on the Ukrainian crisis, but mainly to the UK market context. Demand is moderate (71 Gm3 over a sliding year as opposed to 80 Gm3 12 months ago), temperatures are rising, stocks are high as they are on the continent, and sales of LNG have been sustained since the end of March (40/50 mcmd – 20/25% of demand). Overall, the LNG market is unaffected by tensions, with prices in Asia of under US$13/MBtu, as opposed to US$20 in February. The shoring up of Norwegian deliveries at the end of May via the “Langeled” gas pipeline should also be mentioned among the economic factors. The imminent closure for maintenance (11 to 26 June) of the Interconnector, which is currently used to transit 30 mcmd to the continent, is also a factor pushing prices down (down to €14/MWh, or US$5.6/MBtu?). And the downward trend of oil price indexation in contracts (which encourages spot gas prices to respond in a more marked way to supply/demand balance) should also be highlighted. This is a structural movement in Europe (ENI/Gazprom agreement in May based on the market, 60% of spot prices referenced in France) that is in the process of affecting Asia.
NBP: the downward trend continues
NBP prices are continuing with the downward trend that got under way in early December, and have fallen from €30/MWh (US$11.9/MBtu) on 3 December 2013 to €18.9/MWh (US$7.7/MBtu) on 6 May – a decrease of 37%. The average for the month of April stood at €20.7/MWh (US$8.4/MBtu), 10.8% down on March. The tense situation in Ukraine does therefore not appear to be having any significant effect on NBP – apart from a couple of one-off peaks on 3 March (8.8%, Ukraine placed its military on combat alert) and 7 April (6%, start of fighting in eastern Ukraine). The market context is the reason for this downward trend: 1/ demand is slightly below seasonal norms; 2/ European stocks (which stood at 41.7 Gm3 on 6 May) are the highest they have been at the same period since 2010; 3/ the LNG market is continuing to shrink – Asian prices are at US$14/Mbtu; 4/ there are no significant pressures affecting the oil market (average Brent prices were US$107.5 in March and April). This situation is pushing down listings which are now at around €20/MWh (US$8.1/MBtu) over the summer and €26/MWh (US$10.5/MBtu) for next winter. There is still a great deal of uncertainty over the results of the negotiations that got under way in early May between Russia and Ukraine in relation to the delivery price of Russian gas and payment terms (prepayment in June has been mentioned). Disruptions to the gas trade with Ukraine and even all of Europe are possible in June. This would doubtless affect prices.
NBP: very pronounced downward trend
The NBP price in March stood at €23.2/MWh (US$9.4/MBtu), 4.7% down from February and 13.6% down from January. The first listing for the month of April was at €20.7/MWh (US$8.4/MBtu), 10.8% below the average for March. These are relatively low levels which mark a return to the listings seen in 2011. However, the market is not expecting to fall dramatically over the summer, and a mean price of €20.9/MWh is forecast for NBP. Several factors seem to be behind this downward trend. Demand continues to be weak in the UK – 79 Gm3 in 2013, as opposed to 99 Gm3 in 2010. This is also the case for the 28 countries that make up the European Union – consumption in 2013 was at 462 Gm3 (source: Eurogas), down 13% (70 Gm3) compared with 2010. The competitive price with coal, estimated at €14/MWh, is also considerably lower than the current price. And the price of Brent is falling, now standing at less than US$106/b.