water energy & environment’s regular section brings you an eight-week overview of the latest analysis of the power and gas markets from Energy Trader Daily. By Serge Mazodila.
Following the Q1 market slump caused by the “winter that wasn’t”, the gas market has continued to see losses as a result of healthy storage levels (80% full), above- average temperature forecasts and low demand levels.
This fundamentally Bearish picture has been tempered by high levels of market volatility, caused by the bubbling tensions between Ukraine and Russia, with traders’ focus drawn to the Russian reaction to Ukraine’s unpaid gas bills. Several rounds of talks between the opposing countries failed to reach a satisfactory conclusion, leading Russia to cut off gas supplies to Ukraine for the third time in the past decade. Currently, gas is still transiting through the Eastern state to Europe, but the uncertainty surrounding these flows is leading to increased volatility in the gas market, particularly among prompt contracts.
This state of affairs looks set to continue in the near-term, as the two countries tussle over payment, pricing and pride. The power market has seen a more subdued reaction to the recent Russia/Ukraine tensions, as the market sell-off of 2014 continues, albeit to a lesser extent than in Q1.
The low gas price has led to some gas-switching in the UK as power generators begin to favour gas-fired power plants rather than coal, although this could also be seen as a necessary way to rid the UK grid of excess gas amid low consumer demand levels.
The geopolitical volatility seen in the gas market has led to some upward pressure and price spikes in the power market, but the movements appear to be supporting the price rather than increasing it, and recent weeks have seen a more sideways trend for the power curve, as traders adopt a “wait and see” attitude during this turbulent period.
Serge Mazodila is lead trader of LG Energy Group
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