Table of Contents
DATAMONITOR VIEW
CATALYST
SUMMARY
- Executive price summary: Q2 2009 saw commodities tumble as financial
market woes took a firm grip on the economy
- Executive price summary: the prompt market is not immune to the Q2
commodity price destruction
- Q1 2009 saw prices fall further as gas demand contraction took immediate
effect on the far end of the curve
- Prompt gas markets have also seen significant decreases in Day-Ahead
prices
- Baseload power prices continue to fall with the economic contraction
- Prompt power prices were significantly lower during Q1 2009
- Peaks power prices dipped in line with the reduction in consumption
during Q1
- Crude oil prices reacted to the economic downturn, but showed an upward
movement through Q1 2009
- The pound sterling continued to slide against the US dollar and the euro
- The Emissions Trading Scheme produced low EU Allowances prices as carbon
trading sank to new lows for the 2009 contract
- Although the FTSE continued to decline, this was significantly less than
a barrel of Brent crude
- Despite the recession, coal contracts showed signs of stabilizing after
heavy losses through 2008
- Price spreads are a fundamental tool in assessing market sentiment in
addition to supply and demand factors (1/2)
- UK gas injections are in favor of stock-build as the economy shrinks
- European storage is nearing capacity as bearish prices reflect the
macro-fundamentals
- UK gas storage is at a year-on-year high due to the reversal of NBP gas
prices
- Increased flows and storage data also explain the decline in EU
wholesale prices
- Annual spreads at the NBP on the quarterly product have been affected by
volatile oil prices
- Quarterly strips at the NBP explain year-on-year differentials and major
changes in market sentiment
- On average, the quarterly strip spread has grown since 2008
- Quarterly strip spreads are also a good illustration of how price
differentials impact business performance
- The Quarter-Ahead differential is significantly favorable to 2009
buy-side trading
- Seasonal strips concur and highlight the risks involved in buying too
far ahead of delivery
- Timing and volume risks are essentially driving the weighted average
cost of gas
- Day-Ahead price spreads at the NBP are most volatile, at any significant
level, from the start of calendar Q1
- Geographic spreads are tight, with no room to arbitrage via the EU gas
hubs (1/2)
- Gas consumption is on the up, despite the economic downturn
- Monitoring spreads is important for commercial and regulatory reasons
- Gas markets are in transition, with the future promising further
liquidity (1/2)
- Datamonitor' s gas price outlook is bearish, with the effects of demand
contraction going out to 2013
- Datamonitor' s gas price outlook is bearish, with the effects of demand
contraction going out further than 2013
- Datamonitor' s power price outlook indicates that capacity is sufficient
and the downturn will soften the forward curve
- Datamonitor expects stability in peak-load pricing if the economic
environment does not drastically alter
- Datamonitor' s power price outlook indicates that capacity is sufficient
and the downturn will soften the forward curve
- Wholesale gas and power prices
- The NBP slid through Q1 as the gas market retreated in Europe
- The TTF dipped at both ends of the curve during Q1 2009
- Belgian gas prices softened in line with the fundamentals at the NBP and
TTF
- In light of eroding demand, UK power prices continued to soften
- Dutch power markets softened significantly at both ends of the curve
- Falling power prices were also evident in Belgium trading
- French wholesale power prices softened with the rest of Europe
- German power prices softened as demand contracted around northwest Europe
- Retail gas and electricity prices
- 2008 was not a good year for UK gas prices, but Q1 2009 saw some
reduction in end-user costs
- UK suppliers will gradually pass on the NBP wholesale cost savings to
domestic retail customers
- Belgian retail gas bills illustrated a lagged fall during Q1 2009
- Domestic and SME retail prices in Holland have only been cut once since
May 2007
- Austrian domestic retail gas customers have seen relatively static bills
in comparison to industry customers
- End-user Danish gas prices have shown co-movement in recent quarters,
indicating systematic pass-through
- The domestic retail gas price in Finland is one of the lowest in
northwest Europe
- French retail end-users have always enjoyed regulated tariffs
- Retail prices in Germany illustrated downward responsiveness to Q3 2008
gas commodity prices
- Italian industrial customers have recently seen their gas bills dip in
line with EU commodity markets
- Spanish retail customers have only recently seen fluctuations in their
end-user gas prices
- Retail gas prices in Switzerland are easily distinguished by segmentation
- UK power prices have fallen significantly through Q4 2008 and Q1 2009,
which will need to be reflected in end-user bills
- UK suppliers have been slow to pass on cost savings from the wholesale
to the retail market
- Austrian power bills have illustrated a relatively flat trend over time
- On average, Belgian households have faced rising power bills since
mid-2007
- The Dutch retail market is more responsive for domestic customers than
non-domestic customers
- German retail prices have shown only marginal increases, despite high
wholesale prices
- Regulated French tariffs will soon come under pressure from competition
authorities to be more cost reflective
- Denmark has seen further increases to its end-user bills, making them
some of the highest in Europe
- Finnish households pay more than twice the price that industrial and
commercial customers pay for their power
- Italian power prices have reduced significantly through Q1 2009
- Spain shows one of the biggest differentials between household and
industry power costs
- Sweden' s retail market benefits from its key nuclear power producer,
Vattenfall
- Switzerland' s power prices are tightly spread for all users
APPENDIX
- This brief builds upon Datamonitor' s extensive pricing proposition
- Glossary
- This brief contains a number of industry standard terms
- Our analysis builds on other sources to provide greater insight
- Further Reading
- Extended Methodology
- We assess the profitability of fossil fuel plants across northwest Europe
- Our bespoke services can be tailored to your specific needs
- Ask the analyst
- Datamonitor consulting
- Disclaimer
FIGURES
- Figure: Executive price summary: Q2 2009 saw commodities tumble as
financial market woes took a firm grip on the economy
- Figure: Executive price summary: the prompt market is not immune to the Q2
commodity price destruction
- Figure: Q1 2009 saw prices fall further as gas demand contraction took
immediate effect on the far end of the curve
- Figure: Prompt gas markets have also seen significant decreases in
Day-Ahead prices
- Figure: Baseload power prices continue to fall with the economic
contraction
- Figure: Prompt power prices were significantly lower during Q1 2009
- Figure: Peaks power prices dipped in line with the reduction in
consumption during Q1
- Figure: Crude oil prices reacted to the economic downturn, but showed an
upward movement through Q1 2009
- Figure: The pound sterling continued to slide against the US dollar and
the euro
- Figure: The Emissions Trading Scheme produced low EU Allowances prices as
carbon trading sank to new lows for the 2009 contract
- Figure: Although the FTSE continued to decline, this was significantly
less than a barrel of Brent crude
- Figure: Metrics
- Figure: Despite the recession, coal contracts showed signs of stabilizing
after heavy losses through 2008
- Figure: Metrics
- Figure: UK gas injections are in favor of stock-build as the economy
shrinks
- Figure: UK gas storage is at a year-on-year high due to the reversal of
NBP gas prices
- Figure: Annual spreads at the NBP on the quarterly product have been
affected by volatile oil prices
- Figure: Quarterly strips at the NBP explain year-on-year differentials and
major changes in market sentiment
- Figure: Quarterly strip spreads are also a good illustration of how price
differentials impact business performance
- Figure: Seasonal strips concur and highlight the risks involved in buying
too far ahead of delivery
- Figure: Day-Ahead price spreads at the NBP are most volatile, at any
significant level, from the start of calendar Q1
- Figure: Gas consumption is on the up, despite the economic downturn
- Figure: Datamonitor' s gas price outlook is bearish, with the effects of
demand contraction going out to 2013
- Figure: Datamonitor' s gas price outlook is bearish, with the effects of
demand contraction going out further than 2013
- Figure: Datamonitor' s power price outlook indicates that capacity is
sufficient and the downturn will soften the forward curve
- Figure: Datamonitor expects stability in peak-load pricing if the economic
environment does not drastically alter
- Figure: Baseload
- Figure: Peaks
- Figure: The NBP slid through Q1 as the gas market retreated in Europe
- Figure: Metrics
- Figure: The TTF dipped at both ends of the curve during Q1 2009
- Figure: Metrics
- Figure: Belgian gas prices softened in line with the fundamentals at the
NBP and TTF
- Figure: Metrics
- Figure: In light of eroding demand, UK power prices continued to soften
- Figure: Metrics
- Figure: Dutch power markets softened significantly at both ends of the
curve
- Figure: Metrics
- Figure: Falling power prices were also evident in Belgium trading
- Figure: Metrics
- Figure: French wholesale power prices softened with the rest of Europe
- Figure: Metrics
- Figure: German power prices softened as demand contracted around northwest
Europe
- Figure: Metrics
- Figure: 2008 was not a good year for UK gas prices, but Q1 2009 saw some
reduction in end-user costs
- Figure: UK suppliers will gradually pass on the NBP wholesale cost savings
to domestic retail customers
- Figure: Belgian retail gas bills illustrated a lagged fall during Q1 2009
- Figure: Domestic and SME retail prices in Holland have only been cut once
since May 2007
- Figure: Austrian domestic retail gas customers have seen relatively static
bills in comparison to industry customers
- Figure: End-user Danish gas prices have shown co-movement in recent
quarters, indicating systematic pass-through
- Figure: The domestic retail gas price in Finland is one of the lowest in
northwest Europe
- Figure: French retail end-users have always enjoyed regulated tariffs
- Figure: Retail prices in Germany illustrated downward responsiveness to Q3
2008 gas commodity prices
- Figure: Italian industrial customers have recently seen their gas bills
dip in line with EU commodity markets
- Figure: Spanish retail customers have only recently seen fluctuations in
their end-user gas prices
- Figure: Retail gas prices in Switzerland are easily distinguished by
segmentation
- Figure: UK power prices have fallen significantly through Q4 2008 and Q1
2009, which will need to be reflected in end-user bills
- Figure: UK suppliers have been slow to pass on cost savings from the
wholesale to the retail market
- Figure: Austrian power bills have illustrated a relatively flat trend over
time
- Figure: On average, Belgian households have faced rising power bills since
mid-2007
- Figure: The Dutch retail market is more responsive for domestic customers
than non-domestic customers
- Figure: German retail prices have shown only marginal increases, despite
high wholesale prices
- Figure: Regulated French tariffs will soon come under pressure from
competition authorities to be more cost reflective
- Figure: Denmark has seen further increases to its end-user bills, making
them some of the highest in Europe
- Figure: Finnish households pay more than twice the price that industrial
and commercial customers pay for their power
- Figure: Italian power prices have reduced significantly through Q1 2009
- Figure: Spain shows one of the biggest differentials between household and
industry power costs
- Figure: Sweden' s retail market benefits from its key nuclear power
producer, Vattenfall
- Figure: Switzerland' s power prices are tightly spread for all users
- Figure: Energy pricing proposition
- Figure: Generation spread methodology
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