BAKU, Azerbaijan, Aug.5. Gas demand in power will remain curbed by the continued use of coal in power generation, Trend reports with reference to Oxford Institute of Energy Studies (OIES).
“In early 2019, as TTF prices declined, we saw them fall well below the adjusted coal price, and this continued in 2020 as the impact of COVID-19 put considerable 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, but 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 latest OIES report.
The report reveals that the rise in prices since August 2021, however, pushed gas prices well above the adjusted coal price, encouraging a switch to coal.
OIES analysts note that the situation in Ukraine pushed gas prices a lot higher, but coal prices have also risen dramatically as well.
“However, gas prices are so high that there is still a large incentive to switch to coal in those markets where it is possible. Coal burn has certainly increased in Europe, but gas demand in power generation has not fallen as expected because of issues with nuclear plants, especially in France, and poorer renewables performance. The forward curves continue to show that, even when adjusted for the forecast carbon prices, coal will remain substantially cheaper than gas in power generation through 2023. This suggests that gas demand in power will remain curbed by the continued use of coal in power generation. Furthermore, if there is a recovery in nuclear power generation and better renewables performance, then gas demand in power in Europe could drop significantly, even without forced rationing in the event of a curtailment of Russian flows,” says the report.
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