• Global spreads suggest more LNG to NW Europe
• Coal margins improving but still not displacing gas
• Demand jitters on US-China trade woes
LONDON(ICIS)--Bearish pressure on northwest European natural gas markets from LNG imports and a sliding energy complex will mean gas remains the more attractive fuel for power generation across many countries.
The flood of LNG has drained value from near-term and prompt products with European closes on 19 June showing;
• NBP front month down 27.5p/th from 2018
• TTF front month down €11.2/MWh from 2018
• NCG front month down €11.1/MWh from 2018
In May multi-year low prices meant gas increased its share in the power generation mix.
In Germany, coal and lignite made up 4.6% and 11.7% of the electricity stack that month, while gas accounted for 3.7%.
Coal represented 5.3% in May 2018 and gas 2.4%, according to data from Fraunhofer ISE.
However with gas prices seemingly flat-lining in June and coal prices falling, the profitability of some coal plants has been creeping up.
The Q3’19 German Baseload Clean Dark Spread for a 40% efficiency plant was €0.76/MWh on 18 June, whereas it was at -€0.29/MWh on 22 May.
Typically €1.00/MWh is the threshold for the largest and newest plants, with €4.00/MWh for older sites.
Although there was a small uptick in coal profit margins, gas prices are set to remain low due to a busy LNG schedule and this should displace coal in the power mix.
GLOBAL LNG SIGNALS
Price indications from the Asian Pacific region showed northwest European hubs will remain the preferred unloading destination for cargoes for the remainder of summer with;
• NBP August ’19 - $3.6/MMBTu
• TTF August ’19 - $3.7/MMBTu
• EAX August ‘19 - $4.6/MMBTu
The premium held by the Asian spot LNG market is eroded once shipping and other costs are applied.
There has been a lull in LNG imports in June, with Britain only receiving one vessel, compared with 17 in May, and any sustained period of low imports could support near-curve contracts.
Across the US recent analysis has indicated that European hub prices may be too low to cover the short-term marginal cost of production, which could tighten LNG imports.
According to LNG Edge there could be up to three deliveries to Britain between 22-29 June, but additional intelligence is required to confirm the destination of these.
LNG imports into Britain have totalled 80 so far this year, already ten more than in 2018.
This has led to lengthy coal-free spells in Britain with the longest period running from 17 May to 4 June.
The NBP July ’19 contract was sufficiently low that it would have to gain €4.90/MWh for a 35% efficiency coal plant to be profitable over a 49% efficiency gas plant, excluding tax.
The coal market has sustained downward pressure for most of the year, mainly due to weak demand forecasts for China and surging global LNG capacity.
The European benchmark was trading $9/tonne lower than its 100-day moving average on 19 June at $62.8/tonne.
The contango on the curve indicated that the coal market has room to fall, with the Rotterdam front-month dealing at a $13/tonne discount to the front-year.
Recent announcements on the closure of Chinese coal mines may provide some upside.
With trade tensions between the US and China continuing, economic growth from the world’s second largest economy remains in doubt, hindering global equity and energy markets.
Conversely carbon has managed to withstand strong selling pressure, trading within a narrow 1.2% range around €25/tCO2e, which has kept pressure on coal plants.