Traders react to French nuclear fears, Europe’s power and gas markets soar

28 September 2016 20:59 Source:ICIS
Electricity plant

European traders pumped fresh risk premium into wholesale energy products for delivery this winter at power and gas markets on Wednesday in reaction to nuclear supply fears in the northwest of the continent.

But a consensus after the close that gains were not wholly fundamentally driven and hence were overdone could pave the way for a downward correction on Thursday.

The nuclear concerns centred on French incumbent EDF’s fleet of reactors, after news filtered through to energy markets that 12 of the generator’s reactors may be subject to further technical inspections which could limit their output into 2017.

In an unusual twist, the news appeared to have been leaked – following a briefing described by an angry EDF press officer as strictly “off the record” – by a French magazine website (see market comments).

European energy companies are required to transparently report all future outage information via a public forum as soon as it is practicable to do so, to guard against insider trading. The nature of the leak suggests that EDF would not have been fully aware of the fundamental impact on supply, the length of any outages, or even if the extended outages would occur, and therefore no public statement was made in advance.

It also raises the question of when such information should be reported: should it be reported when an outage situation is considered likely to happen, or only when it is definitely known that it will happen.

The EDF spokesman insisted the news that had been reported was little more than a continuation of old nuclear output target news published by EDF the previous week ( see EDEM 22 September 2016 ).

Piling in

But the nature of events, erroneous or not, did not stop traders, primed to cover positions quickly amid a flow of recent news regarding northwest Europe’s struggling nuclear reactors, from piling in to relevant contacts.

The French Q1 ’17 Baseload was up a huge 17% at €55.90/MWh by the close, a near €8.00/MWh increase. Winter contracts in Italy, which shares physical connections with France, were also aggressively bid higher.

Even Germany, a market usually large enough to absorb any shifts in supply risk in neighbouring countries with minimum internal price impact, saw a 7% increase on Q1 ’17 Baseload.

Fuels markets were also volatile, partly on the assumption that, if nuclear units which usually run 24 hours a day as baseload generation are unable to do so, coal- and gas-fired power plants will have to plug the supply gap. The benchmark TTF natural gas hub was up 4% on Q1 ’17, with Britain’s NBP up 5%.

European coal, which had already been strong earlier in the day, was up 5% by the close on the benchmark front year according to ICE exchange figures.

However, ICIS trade data pointed to the distinct possibility of a downwards correction across markets on Thursday morning. The French Q1 had peaked mid-afternoon at €57.00/MWh, before some value was sold back out of it later in the day.

Consensus among traders late on Wednesday was to expect a sell off on Thursday morning.

By Jamie Stewart