French nuclear crunch causes European CCGT gas demand surge

Alex Thackrah

01-Nov-2016

Demand for gas in power generation at many key European gas hubs surged in October, in response to nuclear supply problems in France and favourable clean spark spreads. This was a key factor in pushing Day-ahead contracts at many European gas hubs around 40% higher month on month.

With uncertainty over France’s nuclear power generation set to continue through the winter, demand for gas-fired generation should continue to play a key role in setting European gas hub prices.

Combined consumption by gas-fired power plants in Italy, Britain, France, Belgium and Spain averaged 194 million cubic metres (mcm) per day between 1-29 October, according to grid operator data.

This is a 76% increase from the October 2015 and October 2014 averages of 110mcm/day and 108mcm/day.

Gas-fired usage was boosted because burning gas has become increasingly profitable compared with coal, which has incentivised fuel-switching. Since February, coal prices have been in an upward trend, driven by sentiment over increased Chinese imports and production caps.

ICIS calculated the UK Day-ahead clean spark spread including carbon price support (CPS) – the profit margin for gas-fired generation including the cost of emissions through the UK’s carbon price floor – for a combined-cycle gas turbine (CCGT) of 49.13% efficiency to average £19.30/MWh between 1-28 October, compared with an average Day-ahead spread in October 2015 of just £3.69/MWh.

Nuclear crunch

However, the main factor behind gas-fired generation demand rocketing in October was a series of outages at French nuclear generation facilities, which are the country’s dominant source for electricity. These supply concerns led to spikes in many European wholesale power markets.

Looking ahead, the French Nuclear Safety Authority has said that four reactors will be taken offline between mid-December and mid-January, meaning nuclear availability will be restricted during a key demand period. A fifth reactor has already been taken offline.

The supply crunch has impacted not only France, but neighbouring markets, and caused gas-fired generation in surrounding countries to ramp up in order to fill the supply gap.

The combined-cycle gas turbine (CCGT) demand increase was a key factor in higher Day-ahead contracts at many European gas hubs, including the British NBP, Dutch TTF and French PEG Nord. Most Day-ahead contracts leapt by around 40% in October, with the TTF surging from €12.56/MWh on 3 October to €16.925/MWh on 28 October.

Other factors contributing to the price rises included lower than normal temperatures across much of northern Europe, low send-out from British LNG terminals and uncertainty over British gas storage. alex.thackrah@icis.com and jake.horslen@icis.com

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