ENTSOG TYNDP 2017 - Main Report

2.2.4 FUEL PRICES AND EMISSION TRADING SYSTEM

As described in the power generation section earlier in this demand chapter, one reason for the increased use of coal for power generation since 2010 but with a sub- sequent small recovery of gas in 2015 is the price difference between the two fuels. Reviewing data from the European Commission (DG Energy), since 2012 the price of coal in Europe has been on a downward trend, largely driven by the shale transformation of the gas industry in the USA, reducing their domestic demand for coal. European gas prices remained above coal, with LNG (liquefied natural gas) supplies heading to Asia due to increased demand in the region and following the 2011 Fukushima accident and ensuing shutdown of nuclear reactors in Japan. However, these prices drove the increase in global supplies of LNG and as demand in Asia began to weaken, Japan LNG prices declined during 2014 before becoming com- parable to UK NBP Spot prices in early 2015. In addition to this, oil prices plummeted in late 2014 and in January 2016 hit the lowest price since 2003, which affects oil indexed gas contracts. These factors have seen European gas hub prices steadily decreasing throughout 2015, increasing the competition between coal and gas in the power market.

€/MWh

60

50

40

30

20

10

0

1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 2012

5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4

1 2 3 4 5 6 7 8 9 10 11 12

2016

2013

2014

2015

Henry Hub

NBP

Japan LNG

Figure 2.13: Evolution of US, EU and Japan LNG Prices.

(Source: Quarterly Report on European Gas Markets, DG Energy, ENTSOG depiction)

€/tonne (Coal) or €/bbl Brent)

€/MWh

100 90 80 70

45

40

35

30

50 60 40

25

20

15

30

10

20

5

0 10

0

1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 2012

5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4

1 2 3 4 5 6 7 8 9 10 11 12

2013

2014

2015

2016

Coal (€/tonne)

Brent (€/bbl)

NBP (€/MWh)

Figure 2.14: Evolution of European spot prices for gas and coal.

(Source: Quarterly Report on European Gas Markets, DG Energy, ENTSOG depiction)

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