Another “Dunkelflaute” this week has led to the highest demand for power plant gas in at least five years. Cool temperatures are supporting demand for heating gas and geopolitics are causing volatility on the markets.
Gas-fired power generation rises to 100 GW
Electricity generation from European gas-fired power plants rose to around 100 GW on Thursday, accounting for around a third of total electricity production. Natural gas has thus been the fuel most in demand for electricity generation in Europe since the beginning of the week, ahead of nuclear power (75 GW) and hydropower (45 GW).
This is due to the significant decline in electricity production from wind power (30 GW) and solar power (20 GW) compared to the previous week. In the coming days, both renewables are expected to increase again to values between 80 – 100 GW, meaning that demand for gas should fall again.
The strongest increase in gas-fired power generation was recorded in Italy, where wind and solar power recently totaled only around 2 GW. The power plant output of gas-fired power plants doubled compared to the previous week to over 50 GW.
Important role of natural gas for the electricity market
Natural gas is thus increasingly becoming the most important substitute fuel for the electricity market. In February, natural gas was already in second place in Europe as an energy source for electricity generation behind nuclear power (81 GW) and well ahead of wind power (46 GW) and hydropower (42 GW).
European demand for gas between November and February was 10% higher than in the same period last year. The short cold spells also played their part, but the main factor was the increased demand from the electricity sector.
Wind power output fell by more than 16% in the period from November to February compared to the previous year. The flexibility required for this came mainly from gas-fired power plants.
In view of the development and discussions surrounding a capacity market, this shows the importance of flexibility services being remunerated appropriately.
Gas prices follow news
On some days, however, price movements were due less to fundamental data and more to geopolitical events and news. There is currently a lot of speculation among market participants as to what a possible ceasefire between Ukraine and Russia could mean for gas flows.
Analysts and traders are discussing the possibility of a return of Russian gas flows to Europe. Ukraine appears to be the most likely transit route.
At present, there are probably only a few who are convinced of the return. However, various model scenarios are circulating among analysts, which traders are using to procure their positions on the market, which will then drive-up gas prices.