PPA, GPA and Carbon Markets 11th May 2022 – Market Price Assessment

Short Term Gas Contracts Off Lows On Supply

• Ukraine grid operator stopped receiving gas at the key pipeline entry point.
• Gazprom PJSC said, “it can’t reroute supply to alternate hub location”.
• After a week of losses, European spot TTF and UK NBP gas contracts moved higher on Tuesday on the back of this news.
• On Wednesday morning, the benchmark front-month TTF contract then erased some of these gains to trade 1.5% lower at 97.40 euros MWh.
• Ukraine’s gas network operator had said late Tuesday, 10^th May, that it would stop receiving the fuel into the Sokhranivka gas hub.
• This is the first time the war in Ukraine has disrupted gas flows to Europe via the country.
• Gazprom PJSC had been flowing as usual through both entry points despite the conflict.
• Major European buyers are still facing the end of month deadlines for Russia’s demand to be paid for gas in Roubles.
• New Stream sees weaker market fundamentals but expects price volatility to continue in the short term.

Fran Reay
Market Analyst at New Stream

“You see the market trying to weigh a decline in Russian flows through Ukraine against bearish factors including warmer weather and LNG imports.”

Germany Secures Four Floating LNG Terminals in a Rush to Replace Russian Gas

Jamie Banks PPA Manager at New Stream

“As Russia’s war continues, we have seen the German government frantically looking for alternatives to Russian pipeline gas and mobile floating tankers repurposed to process LNG from around the world have become the government’s solution. The Germans are betting on more flexible floating terminals and onshore sites. It could be a game-changer as once all terminals are in place, Germany will have a re-gas capacity of 20 bcm per year, that’s 50% of its 2021 gas imports from Russia.”

• The first terminal will be operational in Wilhelmshaven before the end of the year.
• Germany’s Federal Cabinet has approved legislation to cut the approval process for LNG terminals to a 10th of the usual time.
• With fewer hurdles to clear, the LNG terminals that typically take years to build could be installed by Q1 2023.
• More onshore terminals are also in the early planning stages.
• Wilhelmshaven LNG terminal will have an import capacity of over 5 billion cubic meters.
• Floating Storage and Regasification Units (FRSUs) are a quick way of building up additional LNG import capacity.
• EU states are seeking to reduce reliance on Russia.

UK Power and PPA

Jamie Banks PPA Manager at New Stream

“PPA activity continues to focus on forward years, 2024 and 2025 fixing.”

• Gas is still the big driver of PPAs and UK power.
• Price volatility returns at the front end of the curve.
• Wind Generation is high, and power markets look well supplied.
• Increased LNG and gas supply had moved UK pricing lower.
• Higher wind generation has decreased spot market pricing levels and volatility.

Key Drivers:

• Gas demand and Renewable weather forecasts.
• Carbon markets.
• Geopolitics and Russian gas flows.
• European storage levels.
• LNG supply.

Carbon 

• EUAs are currently trading around 87 €/t, with UKAs around 87 £/t.
• The EUA Carbon market continues to trade sideways with lowering seasonal demand.
• Geopolitical tension with Russian gas flows could influence short term price movements.