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Analysis Energy

Gas price reacts to higher Asian LNG price

May 21, 2024 - By our team of market reporters

While the gas price has risen, the electricity price was quite stable this week. The main reasons for the higher gas price are lower Norwegian supply and a higher LNG price. Meanwhile, the electricity price remains stable because the higher gas price provides a firm basis.

The gas price is quite on the rise. On Tuesday, May 14, gas was traded for €29.67 per megawatt-hour. By Tuesday, May 21, the TTF rose to €31.89 per megawatt-hour.

The main reason for the rise in the gas price is planned maintenance on various Norwegian gas fields. For example, the Troll field will deliver 46 million cubic meters less per day next Wednesday. In addition, the supply from the Kollsnes field will decrease by 66 million cubic meters next Thursday. Subsequently, the daily supply will remain limited to about 38 million cubic meters until early June, according to Gassco's schedule.

Asian price drives European
Meanwhile, the Asian LNG price also contributes to a higher TTF price. Due to warmer weather in Asia, the demand for gas to provide extra electricity for air conditioners is increasing. The main increase comes from Eastern China, where temperatures are above average. In addition to China, Vietnam is also experiencing heat, and there is an expectation of increased demand in India during the summer. As a result, the Asian LNG price rose from $10.50 to $10.90. In addition to the increased demand, the fact that the TTF price is rising along with the LNG price adds extra momentum. Due to the competition between both markets, there is currently an upward spiral.

This competition is driven by the attempt to replenish European reserves. That process is back in full swing after a disappointing start. In April, reserves were barely replenished due to temperatures being significantly lower than average. However, in May, the filling level picked up significantly. Last week, European reserves were filled to 62.8%. At the time of writing (Tuesday, May 21), the fill level had increased to 68.8%.

Stable Electricity Price
Meanwhile, the electricity price is much more stable than last week. On Tuesday, May 14, the EPEX was at its lowest point of the week, at a level of €34.05. On Friday, May 17, the price reached the highest point of the week, at €83.11.

The relative stability in the market is remarkable, considering that solar energy production was significant while there was no wind. In total, 40.6% of all electricity was generated from solar energy and 17.7% from wind. Generally, this is an indicator of instability, as the production is not as consistent as wind energy production. This is still visible at the hourly level, but over the entire day, the price remains fairly stable.

In total, 30.9% of all energy was generated by gas power plants. The costs increased due to the higher price, leading to a rise in the base price of energy. This also brought the prices closer together. Moreover, the price of using gas power plants increased not only due to more expensive gas but also because of a higher price for CO2 rights, making gas combustion more expensive. On Wednesday, May 17, European CO2 rights were traded for €70.52 per ton. By Tuesday, May 21, the CO2 price had risen to €74.35. Especially over a longer period, the increase is significant. Compared to the low point of the CO2 price on February 19, the price has risen significantly. On that day, the CO2 price dropped to €54.21, 37.05% lower than the most recent listing.

Significantly Lower CO2 Price
However, the CO2 price is still far from the peak level of over a year ago. Due to the invasion of Ukraine, the CO2 price had risen significantly to a level of €104.81 in March 2023. The extra demand for coal power particularly drove up the European CO2 price. The fact that prices have since dropped significantly is partly due to a decrease in the share of coal power plants, as gas has taken over again due to high fill levels. Additionally, the weak economy restrained the CO2 price. Now that the economy is slowly recovering more steadily, the CO2 price is increasing again.

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