Natural gas is top of our editors’ picks of unfolding commodity trends this week, with Europe’s market responding to oversupply and solid US production giving rise to ample storage. Elsewhere, low US power prices, Germany’s latest plan to step up emissions reductions and soaring nickel prices all feature.
1. Weather forecasts cause wild ride in European gas…
What’s happening? The European gas market is oversupplied, thanks to a global LNG surplus and storage stocks close to capacity. Traders are looking for signs that the bearish mood could lift, with revisions to weather forecasts driving wild swings in prices at the Dutch TTF hub since the start of September.
What’s next? The TTF day-ahead price dropped to as low as €8/MWh last week. This provided little incentive to withdraw gas from storage amid a mild start to the European winter. Any change to the short-term weather forecast is likely to drive continued volatility in the prompt European gas market, as traders watch for signs prices could pick up again.
2. …as strong US output brings stocks close to five-year average
What’s happening? Following another week of robust injections to natural gas storage, US inventory levels climbed to within 10 Bcf of the five-year average on October 4, data released by the Energy Information Administration showed. After dipping to a five-year low in March, inventories have narrowed a deficit of more than 560 Bcf compared with the average as continued US production growth keeps the domestic market well supplied.
What’s next? With S&P Global Platts Analytics forecasting strong injections through mid-October, US inventories are expected to quickly surpass five-year average levels and continue rising prior to the start of winter withdrawal season in early November. High storage levels and strong domestic production should reduce winter price volatility this year. Platts forward price curves show benchmark Henry Hub rising to a seasonal high of just $2.57/MMBtu in January.
3. Fuel and demand shifts push PJM summer power to six-year low
What’s happening? Summer real-time power prices in PJM Interconnection, the regional transmission organization serving a tract of eastern US states, averaged $25.15/MWh. This level, the lowest in six years, came amid lower fuel prices and hot weather coinciding with lower-demand periods, such as Fridays and weekends.
What’s next? The US gas market will play an important role. On average, during daily summer peak hours, natural gas made up 42% of PJM’s online fuel mix. This was followed by nuclear power at 27% and coal at 24%. As long as gas continues to be the type of fuel used by PJM real-time marginal generation units, power prices will be heavily influenced by gas prices.
4. Germany to squeeze fossil fuels in transport, heating sectors
What’s happening? Germany’s cabinet approved a wide-ranging climate protection law that sets a binding target of cutting CO2 emissions by 55% in 2030. It extends fixed CO2 pricing to the transport and heating sectors, giving each sector annual emissions savings targets. The CO2 price is set to start at a modest €10 ($11) per metric ton in 2021, but will rise to €35/mt in 2025.
What’s next? Cutting emissions in Europe’s biggest economy by over a third in the next decade will be no mean feat. The power sector is already on track to achieve its 2020 target of a 40% cut over 1990 levels, and may be able to hit the 2030 target by closing more coal and lignite plants. The transport sector has barely achieved any CO2 savings since 1990, and may need to find other solutions beyond a targeted 7-10 million electric vehicles on German roads by 2030.
5. Indonesia ore export ban lifts nickel close to five-year high
What’s happening? Major nickel producer Indonesia recently announced a new ore export ban from the start of 2020, triggering a short-term buying spree for the metal, which is used to make stainless steel and batteries. LME nickel prices are near a five-year high of $18,000/mt, while stocks in LME warehouses are now down to their lowest level since 2012.
What’s next? Increasing amounts of nickel are understood to be held off-warrant – that is, not in registered LME warehouses – adding to a lack of transparency and fueling volatility. The market is bullish but remains a long way from its all-time high of around $55,000/mt in 2007. Although nickel was not hit directly by US-China trade tensions, it could yet be pushed higher if the two sides find a resolution.