German Power for Next Year Advances to Four-Month High With Gas

Jul 23, 2014 11:40 am ET

July 23 (Bloomberg) -- German power for 2015 delivery, a benchmark contract in Europe, rose to a four-month high as natural gas climbed the most in almost a week.

The power contract touched the highest price since March 17, according to broker data compiled by Bloomberg, advancing for a third day. Next-year gas in the Netherlands, the European Union’s largest producer of the fuel, posted its biggest gain since July 17 after rebels in eastern Ukraine shot down two government fighter jets.

Crude oil also advanced in London trading after separatists downed two Ukrainian Su-25 aircraft in the Donetsk region today. Power contracts can track fuel prices that affect generation costs. Futures traders also consider geopolitical events when pricing longer-dated contracts.

“The power price has had some support from the commodities side of late,” Patrick Hummel, an analyst at UBS AG, said today by phone from Zurich.

German 2015 power rose 0.9 percent to 35.55 euros ($47.88) a megawatt-hour at 5:16 p.m. Berlin time. Dutch 2015 gas gained 1.5 percent to 24.45 euros a megawatt-hour on the Title Transfer Facility hub, broker data show.

Still, electricity prices are unlikely to rise in the longer term, Hummel said. Power will trade between 35 and 40 euros for the next few years, UBS estimates show.

Less Demand

Power for next-year delivery in Germany, Europe’s biggest economy, fell in five of the six years through 2013 as the region’s longest recession cut demand. German electricity usage in 2014’s first five months dropped 5.6 percent from a year earlier to 225.3 terawatt-hours, according to the latest data from national energy lobby BDEW.

“Demand data from Germany is still not good,” Hummel said. “It’s shockingly poor taking into account economic growth.”

Gross domestic product in Germany expanded 0.8 percent in the first quarter from the prior three months, the Federal Statistics Office said May 15. That exceeded the 0.7 percent estimate by economists in a Bloomberg survey.

Vattenfall AB, the biggest Nordic utility, said today its operating profit declined 24 percent from a year earlier in the second quarter, citing “tough market conditions” such as lower prices and volumes. Germany is one of the company’s main markets, its website shows.

Demand for electricity, gas and heat was “considerably lower” than in 2013, Vattenfall said in a statement.