International Gas Prices – January 8 , 2016

NBP: Oil, coal and the weather weigh on the price

NBP and coal priceThe NBP rose to €18.5/MWh ($5.7/MBtu) at end November, but could not withstand various downward pressures, including that of mild December temperatures. The 9.2°C average reported by the “Met Office” in the U.K. broke the 1934 record of 6.9°C. As a result, the level of demand was relatively low, about 200 mcmd compared to 250 mcmd under average weather conditions. In reaction, the December NBP price slipped to €16/MWh ($5.1/MBtu), down 7% in one month. The first January quotations are in the vicinity of €15/MWh ($4.9/MBtu), equivalent to the prices reported in July 2014.

International Gas Prices – December 4 , 2015

NBP:moderate prices with a substantial upward correction

NBP and Coal priceNovember 13 marked a break in the NBP’s ten-month downward trend. After hitting a low of €15.6/MWh ($4.9/MBtu), it climbed to €18.4/MWh ($5.7/MBtu), an increase of18%.The geopolitical context weighed on prices as tensions developed between Russia and two of its neighbors: Turkey (the summoning of the Russian ambassador on November 20 and the military incident of November 24) and Ukraine (deliveries were halted on November 24). But the pressure remains moderate, with the NBP price remaining below the threshold at which gas is competitive in the electricity production sector (in the vicinity of €20/MWh or $6.3/MBtu).

Downward Trends in International Gas Prices continued in October

NBP: Weather conditions and coal are weighing on prices

NBP and coalWinter is near, but the NBP is not going up. On the contrary, it is continuing a steady decline that began back in March 2015, when it stood at €22.3/MWh ($7.1/MBtu). It remained in the neighborhood of €18.4/MWh ($6.1/MBtu) in October and averaged €17.3/MWh ($5.6/MBtu) in early November. These prices are respectively 15% and 27% lower than the previous year. Very mild weather is one reason why prices are so low.

The trend in the coal price has also played a key role. It stands at €49/t ($53/t) for November, down 18% in one year. This is on the same order of magnitude as the price reported in 2009. Back then, the NBP price was about €10/MWh ($4/MBtu) and had even sunk as far as €7.7/MWh ($3.3/MBtu) in September. If the coal price remains at its current level, should the NBP be expected to fall that low? The business environment is different, especially in the United Kingdom, where a carbon tax (Carbon Price Support) of €25/MWh (£18/t) helps support the NBP price by making natural gas more competitive with coal. However, on the Continent, the CO2 price is €8/t and the equilibrium price compared with coal is lower, estimated at only €12/MWh($4/MBtu). This may give rise to downward pressure, especially if the winter is mild, hence to a low inventory draw. This being said, the markets are not anticipating such a pronounced downtrend, but prices of €18.5/MWh for winter 2016 and €17/MWh for next summer.

Data as Nov 6 NBP

Indexed European price: the trend is down

Average montly pricesThe indicative European price (LT77%) stood at €19.5/MWh($6.4/MBtu) in October,down by 3.6%for the month and 20% for the year. The current trends shown by the NBP (below €18/MWh) and the Brent ($52/b) would yield LT prices of between €17.5and19/MWh ($5.5-6/MBtu) for next year.

Av Monthly price

The U.S. market (Henry Hub):below $2/MBtu

US market-Henry HubThe Henry Hub price averaged $2.3/MBtu in October, down 11% in one month. It dropped below the $2 mark ($1.92/MBtu) at the end of the month and, in early November, has been hovering around $2/MBtu. This level, exceptionally low, has only been reached twice in the last ten years: on September 3, 2009 ($2.09/MBtu) and April 18, 2012 ($1.89/MBtu). Such low points have usually been followed by fairly sharp rises, which explains why the annual averages are higher ($2.8 to 4.6/MBtu since 2010). The markets are expecting a similar scenario, with prices rising to about $3/MBtu at year-end 2016, which would yield an average price for 2016 of only $2.7/MBtu. Of course, these trends will be influenced by how harsh this winter will be.  

Data as Nov 6 Henry HubBy Guy Maisonnier, Senior Economist – IFPEN