Gas price temporarily up
China puts ceiling on coal price
Coal prices are currently mainly determined by China's policy on coal consumption and production. An impending shortage of gas also causes price increases. This is according to a report by ABN Amro.
The price increase for coal in 2017 was the result of an increase in demand for the product in China. It was striking that this was the first increase in years. However, the start of 2018 is characterized by a price ceiling from the Chinese government, which leads to a price drop of 16%.
However, the fall in prices did not last long, as it rose again by 10% a little later. This was due to the stock build-up in the course of the holidays around the Chinese New Year.
Stable demand expected
ABN Amro expects in its report 'Energy monitor, March 2018' that demand for coal will generally remain stable in the coming period. This is mainly due to the lack of affordable alternatives, the risk of geopolitical dependency and the ample stocks.
In the longer term, however, the bank expects demand to gradually decline. This is mainly due to developments in Europe and the United States (US), where renewable energy and natural gas are seen as the most important alternative sources of energy.
Limited investments
Investments in higher coal production are limited due to the oversupply. The investments that are made are often aimed at maintaining the current production level. The coal market is changing, but only at a very moderate pace.
The bank is also seeing shifts in the coal trade. Exports from the US have decreased by 25% in recent years. This while producers in Australia (+19%), Russia (+13%) and South Africa (+20%) actually export more. The bank also reports that only 20% of the coal is actually traded.
Natural gas increasingly popular
Natural gas is an alternative, which emits less CO2. This means that in 2016 gas was for the first time more important for generating electricity than coal was. This is despite the US president Donald Trump wants to give additional stimulation to the coal sector.
The price for natural gas (TTF) was €5 per megawatt hour (MWh) on March 17,38. The bank expects the price to be around €19 per MWh at the end of March. That price will rise to €20 per MWH in the following months. That is not the end of the increase, because due to the growing popularity, the bank expects this price to be around € 2019 per MWh at the end of December 24.
Higher gas prices
The Dutch gas price suddenly shot up in the past period, due to extra demand. In general, the Netherlands has sufficient reserves to absorb this peak, but that did not ensure that the spot price of gas remained stable. However, this increase was also due to problems with the gas supply (including at a gas connection between the Netherlands and the United Kingdom) and some production locations in the United Kingdom.
ABN Amro reports that at one point there was even an imminent shortage of gas. However, the consequences for forward prices were nil. With spring on the way, gas prices have returned to normal levels.
Kimberly Baker
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