An agreement between Greek natural gas incumbent DEPA and Russia’s Gazprom regarding a 15% discount in gas prices is set to depress the wholesale electricity market in Greece, sources say.
But disagreement exists over forward trading strategies. Some, citing circumstantial evidence, are convinced that any bearish influence must already have been priced in, while others foresee more pronounced declines on the forward market over the next month.
The waiting game for Greece came to an end when a highly anticipated gas price discount was agreed upon late on Tuesday by DEPA and Gazprom.
According to a Greek government statement, the agreement between the Russian gas giant and DEPA had been “sealed”. It included a 15% discount in gas prices to be implemented retroactively from 1 July 2013, the statement said.
Meanwhile a number of Greek traders told ICIS the agreement will not be signed until March. However the government had not confirmed this by Wednesday afternoon.
“The measure has not been signed yet, however, it’s certain to happen in the next few days because it has already been agreed by both sides,” one trader asserted.
Market participants said lower gas prices will feed into falling power values, but participants were torn over the depth of the effect.
Most participants polled by ICIS said the impact will be a reduction of between €4.00-5.00/MWh on wholesale power prices. “There should be a €5.00/MWh [downwards] move as soon as the discounts are affected,” one said.
Another trader said the impact would be reflected in a 10% fall. Since the beginning of this year, front-month baseload prices on the Greek over-the-counter market have averaged just over €59.00, ICIS data shows, therefore a 10% discount would equate to a near €6.00/MWh drop on the forward market.
However another source stated that, because the news had been expected for some time, the discount would already have been priced in.
He cited changes in bidding behaviour from gas-fired generators that could be observed at monthly auctions. “Some companies were not as aggressive as in previous months,” he noted, with the exception of one which had bid strongly. “I would not expect a fall of more than €1.50-2.00/MWh,” he added.
Another source said: “[Gas-fired producers] have already adapted the running course and they have already reduced the price [offered] on the units on LAGIE [in the last few months],” he noted.
ICIS data showed a €5.00/MWh drop in front-month baseload had taken place between 6-13 March, although coming amid bearish fundamentals, any link to the Gazprom talks would be sentimental at best.
However, one prompt trader said signals had fed immediately into the Greek pool price, known as the system marginal price (SMP), on Wednesday.
“The impact in the market is obvious even from today at the SMP where, for some hours, many gas fired power plants reduced their offers according to that discount of around 10%,” one prompt trader said.
However according to data from the market operator LAGIE, the SMP for Thursday’s delivery of €70.906/MWh showed little day on day movement, up just €0.641/MWh from the previous day’s equivalent. Sophie Udubasceanu