Gas price slump: European hub prices are falling as a result of a growing global oversupply of LNG and weaker oil prices. Europe is absorbing higher volumes of LNG as a market of last resort. This may tip the gas market into pronounced oversupply.
Gas vs coal plant: Lower gas prices are reducing the gap in gas vs coal plant competitveness. Gas-fired
UK first: Significant gas vs coal switching is already taking place in the UK given the carbon price floor and this looks set to continue. This is starting to increase realised CCGT margins and load factors.
Continent next: At current hub prices, Continental gas plants remain ‘out of the money’. But competitiveness is improving, increasing peak margin capture opportunities in some markets (e.g. Belgium, France).
Asset value: Falling gas prices increase the ‘in the moneyness’ of gas plant optionality. This means higher expected margins, more value in the right tail of asset margin distributions (asymmetric upside) and higher risk adjusted asset values. ￼￼
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