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NL: "Grower dares to commit to gas again for longer term"

Brainchild Commodity Intelligence (BCI) has been supporting growers in energy trading for over a decade. The Dutch company achieves this by bringing growers directly to the exchange, where most trading occurs these days. BCI closely monitors energy markets for growers, keeping them constantly informed of all developments. What do energy specialists expect from 2025? And how are growers responding?

LNG
The LNG market is likely to remain on the tight side, according to Klaas Dozeman, Energy Forecaster at BCI. "Although new capacity is slowly but surely being added (Plaquemines, Corpus Christi 3, and Canada as main terminals in addition to some smaller ones in other continents), demand for LNG on the world market is also rising. Asia remains a growth market, while Europe will need to replace 15 bcm of gas still supplied through Ukraine in 2024."

Economic development on both continents will determine how much additional gas demand will arise, he expects. "The more economic growth, the more gas demand will arise." Therefore, it is difficult to say whether this will keep the market in balance. "In this respect, Asia seems to have more economic growth than Europe, where growth is considerably lagging due to high costs and inflation. However, a trade war between China and the US could put additional pressure on economic growth and gas demand."

Capturing gas further in time
At BCI in The Hague, there is increasing demand for direct trading on the exchanges due to the drying up of OTC markets. The 'Over-the-counter market', where two parties trade off-exchange, has seen increasing risks in recent years, reducing volumes and drying up trading. "We are also seeing more interest from smaller parties who want to capture positions in the future, currently up to 2030," signals Managing Director Wouter Alblas.

Maickel Bonke, analyst and trader at BCI, notes that growers are increasingly willing to commit to gas again, years ahead. This is despite the necessary uncertainty about energy market developments, but also due to political and social unrest around the future of the agricultural sector, and greenhouse horticulture as a high-tech part of it. "Especially in periods when gas is relatively cheap relative to the front end (further up the curve, further in time) (Cal-28/29/30), we see growers capturing gas. Closer to it, in 2025 and 2026, there is more uncertainty given the high price levels pending a drop in gas prices."

With today's slightly milder energy prices, energy trading is no longer accessible only to larger growers. BCI requires financial collateral from trading parties, depending on the size of the position and the volatility of the contract. Maickel states, "The collateral required has become a lot less. That makes trading more accessible. We are seeing more interest from smaller growers, also because trading opportunities are increasingly limited to exchanges now that the OTC markets are drying up."


Wouter, Klaas and Maickel

Gas stocks
Taking the Energy Forecaster's view, Klaas assumes gas stocks will need 15-20 percentage points of extra fill demand this year compared to last year due to the relatively calm and cloudy start to winter and the lagging of LNG volumes compared to last year in the fourth quarter due to higher Asian LNG demand in the autumn. Sometime in the coming summer, that difference will have to be made up, he knows. "The extra amount of solar, wind, and nuclear in Europe will only be able to make up for a fraction of that. The chance of (low) gas prices like in February 2024 is, therefore, a lot smaller."

High energy prices due to weather
In Europe, of course, weather also plays an important role. Last year we were able to take full advantage of a very good hydro supply in the summer half-year, but that is no guarantee of how this year will go, Klaas stresses. "A drier and warmer spring and summer could pose a risk to the availability of NPPs in the third quarter, as could the availability of hydro itself."

Even in such a case, additional gas demand will be created, and higher prices will naturally arise. "Better solar availability then, of course, also means lower daytime prices. A third predominantly rainy year would still mean pressure for energy markets in the end (despite the lack of sun) due to smaller cooling demand and better hydro and nuclear availability. Which scenario it will be is obviously impossible to predict in advance."

Revivals spark spread
Klaas sees growers trying to capitalize on negative hourly electricity prices, one of the trends of recent years. The number of negative hours is still expected to increase slightly. In 2024, there were 458. "We see in the market an increasing willingness among power producers to anticipate such prices. This does not prevent the negative hourly price itself, but it does keep the price level manageable. Last year there were hardly any negative extremes (< -€200), and this year we expect the same picture."

Another development is an increase in trading activity in spark spreads. In this way, growers capitalize on what they can make and sell in electricity by firing gas. Maickel explains, "Growers are familiar with this. They have the choice to pivot or close the position. Also, the collateral, the margin, is more favorable because of the correlation between power and gas."

During the energy crisis, the spark spread traded quite high, and there was a good spread to capture. "Over the last year, the spread has fallen almost continuously and has been trading negative for quite some time. Despite the declines, there are also intermediate upturns. That can be a selling moment for some growers."

Logically, capturing a negative spread is happening less, even though it could therefore fall further, the trader and analyst stresses. "If spreads pick up, we do expect more trading here, but this goes hand in hand with a big gas price drop, and this seems to be yet to come."

Geopolitics
Geopolitically, there are still many uncertainties with wars in the Middle East and Russia. In this regard, the influence of incoming President Trump will be followed with suspicion; not only his direct influence on these wars themselves is important, but also his desire to bring additional gas and oil to the market may be felt in the process, Klaas points out.

"Also, the desire to impose sanctions on Russia and Iran can influence oil and gas supply, so the net effect is not crystallized in advance. In addition, new issues can always arise that hardly play a role now: accidents are of all times, while wars can escalate and thus change the supply of gas and oil."

For more information:
Brainchild Commodity Intelligence
info@brainchildcommodity.com
www.brainchildcommodity.com