Analysis Energy
Low demand pushes electricity price
The gas and electricity prices have dropped this week. The gas market is relatively calm now that the stocks are filling up faster. The electricity price decreased due to lower demand related to Ascension Day.
The gas price has dropped this week. On Wednesday, May 7, gas was traded for €31.07 per megawatt-hour. After that, the gas price decreased almost constantly, to €29.77 per megawatt-hour.
Although the European gas price has dropped, the price is about 33% higher than a month ago. Now that the filling season has started, traders are looking ahead again, and the fear of a cold winter is slowly starting to subside. This caused quite a bit of volatility in the market. The cold month of April did not help. The high level earlier this month was mainly due to low temperatures, which prolonged the heating season more than usual. As a result, filling the gas reserves was slower than usual.
Early April broke record after record in filling rate, but by the end of April, the reserves reached the level of 2020. Now that temperatures are back around the average for this time of year, the price is dropping. The high starting point of the gas reserves also helps. Meanwhile, the reserves are increasing again at a rapid pace. The current filling rate in the European Union is 62.8%. The market's expectation is that the reserves will be filled to 100% again this year, as reported by ING.
Uncertainty remains
However, there is certainly no guarantee that the price will continue to drop. The Chinese demand for LNG continues to rise. As a result, the Asian LNG price has risen from $10.40 to $10.50. The expectation is that the price will continue to rise. Although the increase remains relatively limited, as Japan and South Korea are bypassing the spot market, and the gas stored in the terminals is being traded. Additionally, there is more good news for Europe. Various media reports indicate that the processing capacity in the United States is increasing. Due to issues at the major LNG facility Newport, the supply from the country was lower. This had a significant impact on European LNG imports, as one-third of the liquefied gas from the United States is destined for the European market. With the capacity slowly recovering, it is expected that European LNG imports will increase.
Furthermore, several contracts for the delivery of Russian gas to the European Union via Ukraine will expire at the end of 2024. About 15 BCM is still imported through the pipeline. It is quite possible that this volume may be lost. ING expects that Europe will still manage to obtain sufficient gas to fill the reserves even if this happens. However, the bank does anticipate that prices will rise in such a scenario.
Electricity prices vary significantly
Meanwhile, the electricity price varied significantly this week. On Wednesday, May 8, the EPEX reached the highest point of the week, and electricity was traded for €91.86. The rest of the week, prices were much lower, hitting a low point on Sunday, May 12, when electricity was traded for €7.79.
The electricity price was on the low side this week. Remarkably, renewable energy sources contributed relatively little over the entire week. In total, only 49.2% of all electricity was generated from renewable sources. In recent weeks, the percentage has been around 70%.
The summer weather still had its impact on the market. A total of 39.5% of all energy was generated by solar panels. Meanwhile, the weak wind resulted in little constant pressure on electricity prices. The percentage of wind energy was 9.7%. As a result, coal-fired power plants had to work hard, and 39.3% of the electricity was generated by gas-fired power plants. Especially on Wednesday, May 8, the high gas demand led to expensive electricity, as less solar energy was generated that day compared to the rest of the week. On Monday, May 12, the week started with a more attractive rate due to the substantial production from solar panels.
Ascension Day
The fact that prices remain relatively low is due to lower demand. Due to the May holiday, many people were still on vacation last week. Additionally, Ascension Day fell on Thursday, May 9, causing a significant price drop. On that day, the industry was largely idle, leading to a much lower demand. There was a slight recovery on Friday, May 10, but the demand remained low. Many employees choose to take an extra day off on that day.
