International Gas Prices – September 4 , 2015

NBP: summer prices moderate, without sharp drops

NBP & coal priceThis summer, the average NBP price did not decline to the same extent as last year. In July, it even found itself under slight pressure: at €21.2/MWh ($6.8/MBtu), it was 2% higher than in June and 30% higher than in June of last year. During August, the price saw a fairly marked downtrend, hitting a low of €17.2/MWh on August 24 before rallying. The first September quotations, progressing due to sustained demand, were in the neighborhood of €18.9/MWh ($6.2/MBtu). These moderate values helped make natural gas more competitive in the electricity sector compared to coal, a phenomenon fostered since April by the increase in carbon tax support, now fixed at £18/TCO2 (about €24/TCO2). The result has been a fairly notable increase in gas consumption in this sector: 18% more in June on an annualized basis, as opposed to a 24% decrease for coal over the same period.

Looking to the months ahead, the market expects prices to remain within a fairly narrow range, i.e. between €21/MWh ($6.8/MBtu) during the winter and €19/MWh ($6.1/MBtu) next summer. These levels are in line with market conditions, e.g. the prices expected for long-term contracts or LNG spot prices in Europe.

Data as of september 2

Indexed European price: down 7% in August

Average mothly pricesThe indicative European price now incorporates a spot share (NBP) of 77.4%, in line with the new mode of computation adopted in France. This price is converging with the average German price, an indication that, in Europe, short-term markets are gaining influence to the detriment of formulas indexed primarily on oil.

In August, the new indicative price (LT 77%) stood at €19.9/MWh ($6.5/MBtu), down by 7.0% in one month and by 21% since the beginning of the year. This reflects the decline in both the NBP and oil prices. If current trends persist (the Brent at $50/55/b), the market could see a convergence between the “100% oil,” “LT 77%” and NBP prices by year end, in the vicinity of $7/MBtu. This has not happened since 2006.

Av monthly price

The U.S. market (Henry Hub): moderate variations

US marketThe Henry Hub averaged about $2.8/MBtu in July and August ($2.7 to 2.9/MBtu) with moderate fluctuations (from -4.9 to +5.8%). Market forecasts still predict price stability for the years to come ($2.9/MBtu in 2016 and slightly over $3 in 2017), which is consistent with DOE data. The latter still see production growing strongly (5% in 2015) despite the sharp downturn in drilling activity (-40% since November). So far, the impact of this trend on production at shale basins has been limited.

 Data Henry hub

 By Guy Maisonnier, Senior Economist – IFPEN