Bullish gas market to further drive SEE spot prices upward

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Bullish gas market to further drive SEE spot prices upward – EQ

Date: September 28^th 2021

Author: Tanja Srnovršnik

Category: Trading

Topic: Electricity , Natural gas , CO2 emissions

Soaring gas prices are expected to further lift spot power prices in south-east Europe (SEE) next week, to an average of over EUR 155/MWh, according to Montel’s Energy Quantified (EQ) data.

Fuel prices have hit new records this week, contributing to strong SEE power prices, said Eylert Ellefsen, senior analyst and hydrology expert at EQ, on Tuesday. The front-month Dutch TTF gas contract extended its record to EUR 85.36/MWh on Tuesday. Prices of coal and emissions allowances have also spiked, with the latter benchmark – the Dec 21 EUA – hitting a fresh record high today at EUR 65.77/t.

This bullishness is also one of the reasons why EQ estimates SEE spot power prices this week will be around EUR 2-4/MWh higher than was forecast last week, said Ellefsen. Regional spot prices should average from EUR 133.23/MWh in Bulgaria to EUR 153.12/MWh in Slovenia.

Romanian wind power output is expected to average 0.68 GW this week, which is 0.12 GW below normal, while hydropower output in Romania and Serbia combined is also forecast to be 0.5 GW below normal. Meanwhile, Germany will see a strong increase in wind power output.

The day-ahead baseload prices for delivery on 29 September reached EUR 154.82/MWh on the Slovenian BSP exchange, while they were EUR 148.44/MWh on the Romanian and Hungarian power exchanges, Opcom and HUPX. On the Bulgarian Ibex power exchange, they were EUR 147.21/MWh.

Overall bullishness

The fundamental outlook for the SEE market over the next week is set to remain mostly similar to this week. On the other hand, Germany will see a decrease in wind power output, which is expected to push its spot prices upwards, said Ellefsen.

“The most important factor will be how the fuel sector develops given how bullish the gas market has been this Tuesday,” said Ellefsen. Gas prices have been driven by tight supply and strong demand. The halving of Russian gas flows to Germany through the Yamal pipeline has further contributed to supply fears ahead of this winter.

The bullish gas market has lifted the traded Hungarian futures contract for Q4 2021 by nearly EUR 20/MWh this Tuesday, added Ellefsen. The contract traded at over EUR 185/MWh on the EEX exchange.

This has prompted EQ to increase its week-ahead SEE spot price forecast by about EUR 7-8/MWh “to cover the effect of the increased gas market,” added Ellefsen.

Spot prices are expected to average between EUR 155.73/MWh in Hungary and EUR 160.07/MWh in Slovenia. Average Bulgarian spot prices are expected to be somewhat lower, at EUR 140.08/MWh.