GRAPHIC DETAIL: TTF front month back at the top of the fuel-switch range

Author: William Peck


• LONDON (ICIS)--Natural gas prices may have no more room to gain relative to other fuels, following a more than 17.5% increase for the TTF front month in August

• Gas actually underperformed European EUA carbon allowances and German power over the month. Crucially though, the coal front month gained only 4%, so the gas surge is close to making 34% efficiency coal plants competitive with 54% efficiency gas plants for the first time since the second quarter of the year

• Coal plants in Germany range in efficiency from 34% to 46.5%, with a weighted average of 41%. Gas plants range from 39% to 61.5% with an average of around 50%

• Low-efficiency coal plants taking high-efficiency gas plants out of the power mix will free up gas reserves to inject into storage

• The 54%-to-34% fuel-switch level was enough to make significant progress with storage injections in the second quarter of the year. When gas prices surged in mid-April, European gas stocks were only 10% full, 11.6 percentage points emptier year on year. After just over a month of prices close to the fuel-switch threshold, stocks had pulled within 3.5 points of the level from the previous summer, when gas and coal were far more competitive

• Three months on, stocks are still three points emptier year on year. The European heatwave supported gas demand, while key infrastructure maintenance has occurred earlier in the year

• German gas-fired plants generated around 5GW of power over the last two Septembers. Shippers will be hoping that after the recent price surge, they will be able to keep output closer to the roughly 3.8GW generated in August

• The difference between the two figures equates to around 5.5 million cubic metres/day in gas demand. Had this been available for injection in August, German gas storage would be 0.7% fuller than it is currently. This is a significant figure, given that stocks are 6.7 points emptier year on year

• If injections fail to step up significantly in September, shippers may consider a higher fuel-switch level to take gas further out of the power mix in October. But with mild weather forecast to constrain heating demand at least at the start of the month, the top of the fuel-switch range is likely to be sufficient

Photo by Philip Silverman/REX/Shutterstock