Dutch power curve may stay in backwardation on back of German power, TTF

Author: Matthew Jones


The Dutch Cal ’18 wholesale electricity contract has moved further into backwardation over the past month, driven by movements on the German power and TTF natural gas markets.

The Cal ’19 contract, which had been in contango for most of the year, also ended June in backwardation having fluctuated considerably due to volatility in the fuels complex.

How the shape of the curve develops from here will depend on movements in the German power and TTF markets, with the move to backwardation in German power out to 2019 described by one source as “a long-term development”, while the TTF could respond similarly to ever-increasing global LNG supplies. All of this would make backwardation on Dutch power more likely.

Backwardation means the price gets cheaper further into the future, while the opposite curve shape, contango, is traditionally the more prevalent shape, reflecting increased risk the further into the future you go and inflation.

Future movements in gas, oil and German power all affect the shape of the Dutch far curve.


Although the Cal ’18 contract has been in backwardation all year, the discount to the Cal ’17 contract began to widen towards the end of May. On 18 May, Cal ’17 held a premium of €0.60/MWh over Cal ’18. But this premium had increased to €2.30/MWh by 1 July as bullish movements on Cal ’17 were not matched by the Cal ’18 product.

The Cal ’19 contract has also moved into backwardation in recent sessions, having been in contango for most of the year. The illiquid nature of longer dated contracts in the Dutch market, combined with volatility in the fuels complex in June, led to fluctuations between contango and backwardation, but the trend so far this year suggests that the contract could move to a more lasting backwardation.

Price Drivers

The TTF natural gas hub has traditionally been the main driver of the Dutch far curve owing to gas being the country’s marginal fuel, ramping up and down to meet changes in demand. However, declines in the country’s gas-fired plant production (see EDEM 28 June 2016) and increasing interconnection capacity with neighbouring countries has meant that movements on the German power market are becoming increasingly important in determining Dutch prices.

Since 1 June, prices on the Dutch far curve have correlated much more closely with German power than with TTF natural gas, largely due to the impact of increasing coal prices, with coal a key driver of German power.

The strengthening coal price has been more bullish for calendar year contracts nearer in on the curve than for those further out, which has pushed the German far curve into backwardation.


The future shape of the Dutch curve will depend on movements in the German power and TTF markets.

“I see this as a long-term development,” a trader previously said about the German power curve’s backwardation. “There will be higher coal supply and increasing renewable energy supply up to 2019,” he said (see EDEM 23 November 2015).

And the influence of the German power market on Dutch prices is likely to increase further in mid-2017 when a new 1.5GW interconnector between Doetinchem in the Netherlands and Wesel in Germany is complete. This will enable more imports from the lower cost German market, which should have a bearish impact on Dutch prices.


The TTF natural gas curve is likely to be influenced by increasing LNG imports arriving from the US.

Around 130 million tonnes per annum (mtpa) of global production capacity should come online by 2019, of which 60mtpa will be from US plants. Global LNG output in 2015 totalled 250m tonnes.

According to traders, increasing LNG imports arriving each year could push the TTF natural gas curve into backwardation (see ESGM 3 June 2016).

“LNG cargoes are becoming more and more interesting for Europe. The LNG impact could push down the longer dated TTF contracts,” said a trader looking at the Dutch power market.

However, the TTF far curve could be lifted by a continued oil price recovery. Brent crude, the global benchmark for oil, can drive gas pricing due to the prevalence of oil indexation in some long-term contracts in mainland Europe.

With data from the ICE exchange showing oil futures in consistent contango all the way out to 2018, the impact of oil could outweigh the influence of LNG, pulling the TTF curve into contango. This influence could feed through to the Dutch power market.

“It’s going to be very volatile. I wouldn’t place bets anywhere at the moment,” one trader said about the future shape of the Dutch power curve. matthew.jones@icis.com