The Business Times

Europe’s power generators return to burning gas as prices drop

Published Wed, Oct 26, 2022 · 08:58 PM

Natural gas is now so cheap that some of Europe’s power stations are turning to the fuel again.

The price of gas in short-term markets has dropped as warm weather keeps demand for gas low and the continent’s storage tanks full, making it more cost-effective for generators to use. Coal has been the cheaper fuel for months, with countries like Germany and the UK extending the life of plants to secure winter energy supply.

German gas-fired generation averaged 8.4 gigawatts on Tuesday, or about 33 per cent above the 30-day average, data from grid group Entsoe show. In the Netherlands, gas-fuelled output of 5.9 gigawatts was 44 per cent above the monthly average, while coal-fired power more than halved to 835 megawatts to the lowest since May. 

Gas prices have plunged by almost half this month amid a wave of unusually warm weather that’s delayed the usual jump in heating season demand, while continued high imports of liquefied natural gas means even more fuel is being injected into brimming storage sites. By contrast, coal costs have only dropped by a fifth in October, making it more cost-effective for generators to use gas.

Power prices are falling, too, with month-ahead German power down as much as 2.5 per cent to €234 (S$329) per megawatt-hour, near the lowest since June. Year-ahead electricity prices in Germany slipped to €372.75, just above Monday’s three-month low.

So much gas has been arriving to Europe during a period of relatively low demand that at one point, traders could be paid to take gas off sellers’ hands. The next-hour price on the Netherlands’ Title Transfer Facility gas trading hub went briefly negative on Monday.

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However, the decline in gas prices isn’t likely to last. 

“LNG can’t be offloaded into the storage units because they are full and its squeezing the value out of short-term gas,” said Jean-Paul Harreman, a director at EnAppSys. “Of course, when it gets colder and people start using gas from storage I think prices will definitely normalise again.” BLOOMBERG

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