Marknadsinsikt: prisutveckling på gas

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Gas market – Carbon and coal drive gas higher 

The gas market continued to rise last week, reaching a three-year high for the front year contract. Like the Nordic power market, there was further upward pressure on the front contracts last week. The price for Q4-18 rose about EUR 1.2/MWh (~ DKK 0.11/m3).

The gas market traded higher on inputs from coal and carbon. Gas is affected by the price of coal and carbon, as coal and gas compete in the power plant sector in Europe. Gas emits significantly less carbon to produce one MWh of electricity. It is therefore not as strongly impacted as coal power when the carbon price rises. All else being equal, rising carbon prices will improve the likelihood of gas being competitive with coal. So when carbon rises, we can expect greater demand for gas from the power sector. The same is true when coal is rising, as this will also make gas power more competitive in relation to coal power. 

Carbon rose above EUR 18/tonne last week for the first time in seven years, while coal for 2019 rose USD 2.5/tonne, due in part to strong demand in Asia.

In addition to strong inputs from the rest of the fossil fuel market, the gas market is impacted by the fact that storage levels in European facilities are lagging behind the levels seen the last few years. This is somewhat similar to the hydro balance situation in the Nordic power market, and is being carefully watched in the gas market. With a deficit in the storage facilities as we head towards winter, the market is nervous about the supply balance over winter. Much will depend on whether we experience a cold or a mild winter, but the risk of high prices over the winter is significantly higher when the storage facilities are not filled to normal levels. The gas market is therefore particularly sensitive for the coming winter to new inputs that can exacerbate the situation. Another thing that is making the market nervous is the low LNG deliveries we are currently seeing. This is due to much higher LNG prices in Asia, which means that LNG is shipped there instead of Europe. The French nuclear power situation is also being closely watched, as a nuclear power production deficit has to largely be replaced by gas power.

So overall, several inputs to the gas market last week that are resulting in steady increases. This week began in the same vein, with gas continuing to trade higher.

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