BAKU, Azerbaijan, May 30. The rising European prices reflecting the tight global supply demand balance might have been expected to lead to a loss of competitiveness for gas in the power market, Trend reports with reference to Oxford Institute for Energy Studies (OIES).
The coal price (ARA – Amsterdam, Rotterdam, and Antwerp) is adjusted for the relative efficiency of gas power plants compared with coal power plants and the relatively higher carbon costs of coal.
“In early 2019, as gas prices declined, we saw them fall well below the adjusted coal price, and this continued in 2020 as the impact of COVID-19 put significant downward pressure on prices. As a result, there was significant coal to gas switching in 2019 and in 2020 even some lignite to gas switching in Germany. The sharp rise in TTF prices in early 2021, might have been expected to lead to a significant loss of competitiveness of gas relative to coal. However, coal prices also rose sharply, although by less than the TTF price, and the EU ETS price also rose to provide a further boost to the carbon-adjusted coal price. Gas, therefore, maintained its competitive position, providing some support to gas demand in Europe through the middle of 2021,” reads the OIES report.
The Oxford Institute experts note that the rise in prices since August, however, pushed gas prices well above the adjusted coal price, encouraging a switch to coal.
The report says that the war in Ukraine pushed gas prices a lot higher but coal prices have also risen dramatically.
“However, gas prices are so high that there is still a large incentive to switch to coal in those markets where it is possible, and this has been noticeable in Europe. The forward curves show a big margin for gas over coal through 2023. This suggests that gas demand in power will remain weakened relative to coal.”
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