Monthly Price Brief - A Review of European Gas and Power Price Trends: October 2007

Table of Contents

• DATAMONITOR VIEW
  • CATALYST
  • SUMMARY
• ANALYSIS
  • The EU' s third package of energy reforms proposes limited opportunities for new investment
  • The EU' s third package of energy reforms proposes limited opportunities for new investment
    • Unresolved issues will be the key to achieving a successful single European energy market
    • The majority of TSOs are affiliated to a vertically integrated utility
    • Limits to network ownership have struck a raw chord with foreign investors
    • UK gas transmission charges account for a small percentage of end user bills
    • Cross-subsidization of network charges is a feature of European markets
    • Domestic power prices illustrate a positive but weak relationship
    • Large industrial prices for power customers are spread roughly around the sector average
    • Localized distribution companies far outnumber national transmission regimes
    • Localized distribution companies far outnumber national transmission regimes
  • Infrastructure and storage positions are not a worry for either the UK or its European counterparts
    • Infrastructure and storage positions are not a worry for either the UK or its European counterparts
    • Strategic European storage projects are not far behind the UK
    • Pipeline investment will increase capacity this winter, confirms UK energy regulator Ofgem
    • LNG projects are a priority in off-setting long-term concerns over security of supply
    • Private investment in LNG is evident from the major European suppliers
    • The Bacton-Zeebrugge interconnector acts as a bridge to European gas shippers
    • Strong LNG injectability reduces the tightness in UK gas supply
    • Total UK gas stocks are significantly higher than in 2006
    • The demand side response has been positive as consumption falls
  • Northwest European power markets continued to rally during Q3
    • Belgian power prices illustrated sustained stability this autumn
    • Short-term French baseload prices rose as month ahead contracts gained significantly over last month
    • Near-end instability in the German market highlights NW European price interdependence
    • Dutch power curves broke the NW Europe trend as prices fell
    • UK power prices showed bullish form as prices continued to rise
  • Gas prices rose as traders voiced concerns over winter 2007/08
    • NBP gas prices took an upward turn at the end of Q3
    • Near-end gas prices rose at the TTF with Brent crude indexation
    • The spot price pushed upwards as oil speculation impacted upon wholesale gas trading
• 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
  • List of Figures
    • Figure 1: The independence of transmission systems
    • Figure 2: Network charges typically account for a small portion of the household domestic bill (October 2007)
    • Figure 3: Large industrial pricing and low network tariffs are the result of government subsidies to transmission operators (October 2007)
    • Figure 5: The UK is anomalous to the indicative grid access and end user bill relationship (October 2007)
    • Figure 5: Large power users benefit from lower network charges that feed through to lower end-user bills (October 2007)
    • Figure 6: Germany counts the highest number of power distribution companies due to its regional nature
    • Figure 7: European gas transmission and distribution numbers are stable, with the exception of Italy and Spain
    • Figure 8: Most EU member states are preparing for the shortfall in indigenous gas supplies by investing in LNG
    • Figure 9: Investment in adding capacity to LNG projects is at the forefront of energy companies' business plans
    • Figure 10: Price signals and cross-border gas imports work in tandem to fulfill any shortfall in supply
    • Figure 11: The UK' s regassification plants bring supply stability and reduce gas market uncertainty in the long-term
    • Figure 12: Higher UK gas stocks alleviate the pressure as winter 2007/08 approaches
    • Figure 13: A year-on-year comparison illustrates that mild and seasonally low temperatures can be reflected on the gas demand side
    • Figure 14: Northwest European power markets continued to rally during Q3
    • Figure 15: Belgian wholesale power prices firmed a touch on the near end of the curve as quarterly and annual prices continued to plateau
    • Figure 16: Near-end prices gained on last month' s for quarter ahead and significantly more for month ahead
    • Figure 17: The near-end of the German power curve characteristically followed the NW European market, as month ahead contracts rose sharply
    • Figure 18: Dutch power prices continued to fall this month for Quarterly and Year-Ahead contracts, the Month-Ahead price rose
    • Figure 19: The approach to winter 2007/08 has been illustrated by the UK' s power curves rising at both ends
    • Figure 20: Gas prices rose as traders voiced concerns over winter 2007/08
    • Figure 21: In line with seasonal expectations, gas prices in the UK upturned in the first months of Q4, most notably in the month ahead contract
    • Figure 22: NW European gas producers experienced a sharp rise in prices due to current global oil uncertainties
    • Figure 23: Belgian spot contracts took a sharp rise, diverging from fundamentals as a result of oil market indexation
    • Figure 24: Energy pricing proposition
    • Figure 25: Generation spread methodology