NBP:moderate prices with a substantial upward correction
November 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).
NBP: Weather conditions and coal are weighing on prices
Winter 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.
Indexed European price: the trend is down
The 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.
The U.S. market (Henry Hub):below $2/MBtu
The 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.
The NBP price for September averaged €19.2/MWh ($6.3/MBtu), down 8% compared to September 2014. The markets anticipated that, barring exceptional phenomena (weather or other), next winter’s average prices would be about the same: €19.5/MWh ($6.4/MBtu). For summer 2016, the price is expected to be under €18/MWh ($5.9/MBtu). Several factors account for this situation of prices that are historically low compared to the trends since 2011.
November 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).
