European power prices continue to decline, but NS1 leaks add to uncertainty [GGP]
European power prices continue to decline, with average September rates dropping more than 20% compared to August, returning to July levels. However, gas supply news is once again in the spotlight, as leaks in the Nord Steam pipelines lead to suspending gas flows for at least one month.
Europe
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European power prices are continuing their decline, with average September rates dropping more than 20% compared to August, returning to July levels.
Relatively stable gas prices and solid renewables generation are helping to stabilize prices, but clouds may be on the horizon.
Gas supply news is once again in the spotlight, as leaks in the Nord Steam pipelines lead to suspending gas flows for at least one month.
The UK has seen the largest price drops since the peak in late August, with a massive 53% reduction in weekly average rates between week 34 and week 38 (last week).
UK prices averaged €281 last week, and are now below German rates, still caused mainly by British gas prices trading at a discount to their European equivalents.
German prices averaged €341 last week, partly closing the gap with France at €358.
One reason for higher German rates, despite stable gas prices, was the decline in wind power generation.
Italy remains the most expensive market, but also here the decline has been extreme since the top in August, declining by 41%, averaging €387 last week.
With only a few days of September remaining, declining power prices in recent weeks will lead to a significant decline in monthly averages for all major European markets.
Average prices are now closer to July levels, with an average 23% decline in prices compared to August across France, Germany, the UK and Italy.
Spain is the exception, where the price cap on electricity has held prices artificially low since June.
Spot prices are expected to stay relatively stable this week compared to last week.
Stronger wind speeds are expected across the continent, especially by the end of this week, but the effect of this could be partly offset by gas market volatility.
As briefly mentioned above, prices in the European gas market remained relatively stable last week, with the TTF spot starting at €165 and ending at €168 per MWh.
It was slightly more volatile in the futures market, but prices were still quite stable, with the front-month increasing by 3%, ending the week at €181.
However, at the beginning of week 39, gas prices rebounded, especially on Tuesday, September 27.
Spot at short-term futures was up about 6% compared to closing on Monday, partly as a result of news about leaks on Nord Steam 1 & 2 pipelines, covered later in this note.
The front-quarter is now back above €200 per MWh, closely followed by the front year at €197 at the time of writing.
Power forwards also traded upwards on Tuesday, with similar movement as seen in the gas market.
German front-year is trading at €492 at the time of writing, 49% lower than at the highest level in late August.
European gas storage continues to fill as well, with total European storage standing at 87.7% at the beginning of week 39.
The solid storage levels will be particularly important now that it will be a long time for Russian flows to return.
On Tuesday, September 27, several leaks were found in the Nord Steam 1 and 2 (NS1 and NS2) pipelines, in Danish and Swedish territory.
The leaks were described as very large, and the operator Nord Steam AG described the damage as “unprecedented.”
NS1 has not been transporting gas since late August, but there is still gas in the system to maintain pressure, causing the large leak of natural gas into the ocean in Swedish and Danish territory.
NS1 will not come back to normal operation until at least October 26, the operator said in a statement.
Since gas has not been flowing through NS1 anyway, the short-term impact on gas prices and fundamentals are expected to be limited, however, the long-term implications are highly uncertain as to when flows will return if they return at all.
North America
Hurricane Ian is expected to crash into Florida’s gulf coast on Wednesday or Thursday this week and could lead to large-scale power outages across the state.
Florida’s two largest electric utilities have mobilized up to 22,000 workers to address the expected outages.
Damage to the energy system is also expected in the neighboring states of Georgia, South Carolina, North Carolina, and Tennessee.
The storm will undoubtedly lead to a drop in power demand in the region, but as is the case with all natural disasters, the exact impact – both from a humanitarian and infrastructure standpoint – are nearly impossible to predict.
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