OVERVIEW

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Introduction

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This brief highlights the key factors that will steer European wholesale gas prices in the coming five years. It also contains price scenario forecasts for the main European wholesale gas markets.

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Key reasons to read this report

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Wholesale gas markets have been bullish for a sustained period

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In common with the UK NBP market, the Belgian Zeebrugge wholesale market has shown upward movement

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The Dutch TTF has remained softer compared to Zeebrugge but still displays bullish sentiment in tracking the main markets

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A number of core factors will continue to influence wholesale gas markets

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The ability of European gas markets to meet demand indigenously is declining, putting further upward pressure on wholesale prices

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The low levels of gas self sufficiency in most parts of the EU will exert an increasing apparent impact on wholesale gas prices

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Europe has seen a strong increase in LNG consumption in recent years, creating further upward price pressures

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France and Spain are Europe's main LNG consumers and as such are the most impacted by wider wholesale price influences

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Significant volumes of gas storage capacity, afford Germany, Italy and France greater degrees of insulation to wholesale volatility

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The existence of high pipeline capacity margins in Europe curtails the potential for capacity shortage induced wholesale price volatility

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LNG capacity margins remain strong underlining supply side difficulties and costs rather than regasification availability

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Seasonal weather variations share an important relationship with wholesale energy prices

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The LCPD will ultimately take a sizeable chunk of coal generation offline, boosting both gas demand and wholesale price levels

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Even the most liquid of wholesale markets remain influenced by oil price dynamics

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Despite political friction, Russia will be crucial to meeting Europe's gas demand in the long term

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Datamonitor has developed a series of wholesale price scenarios using its European Wholesale Energy Price Scenarios Model

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Under the High Price Scenario supply constraints serve to exert an upward impact on wholesale gas prices across Europe

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The High Price Scenario sees a squeeze in both spare LNG and pipeline capacity, whilst climatic factors drive prices higher

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The High Price Scenario sees energy policy creating greater levels of upward pressure on wholesale gas prices

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Under the Business As Usual Price Scenario supply squeezes show some signs of easing

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Under the Business As Usual Price Scenario supply capacity and seasonality factors prevent significant or concerted price spikes

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Energy Policy does not unduly drive prices upwards under the LCPD

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Under the Base Case Price Scenario the wholesale price effects of the ongoing supply/demand squeeze are reversed

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Both LNG and pipeline capacity remains plentiful under the Base Case Price Scenario

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Under the Base Case Price Scenario energy policy acts in order to constrain and ease wholesale price pressures

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Appendix

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List of Figures

Figure 1: As Europe's most liquid wholesale market, the NBP has shown strong upward price trends and volatility in recent years

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Figure 2: In common with the UK NBP market, the Belgian Zeebrugge wholesale market has shown upward movement

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Figure 3: The Dutch TTF has remained softer compared to Zeebrugge but still displays bullish sentiment in tracking the main markets

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Figure 4: Declining European gas self sufficiency will continue to exert an impact on wholesale price fundamentals

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Figure 5: Markets with low levels of indigenous gas production have greater potential for wholesale volatility

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Figure 6: The growth in the role of LNG in Europe brings with it a change in pricing fundamentals

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Figure 7: Markets with a larger reliance on LNG are more exposed to non-European price fundamentals

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Figure 8: Longer term price volatility potential will be diminished by the development of new storage capacity

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Figure 9: Gas markets in the EU 27 generally have scope to easily import greater volumes of pipeline gas

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Figure 10: Significant scope exists to import greater volumes of LNG into both new and existing sites

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Figure 11: The price effect of seasonality in the energy markets will continue to be significant

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Figure 12: Even the most liquid of wholesale markets remain influenced by oil price dynamics

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Figure 13: Despite political friction, Russia will be crucial to meeting Europe's gas demand in the long term

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Figure 14: Datamonitor's "European Wholesale Energy Price Scenarios Model" uses core market drivers to develop price scenarios

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