European gas-for-power demand to drop this winter despite rare Nov rise

Europe is set to burn less gas for power generation this winter despite strong gains in early November due to low wind power, S&P Global Commodity Insights analysts said Nov. 19.

The region's five biggest power markets are forecast to see a 6% year-over-year decline in generation from combined cycle gas plants versus last winter (October 2023 to March 2024).

The data showed gas-for-power demand across Germany, the UK, France, Spain and Italy averaging 31.3 GW this winter compared with 33.1 GW last winter.

Gas-for-power needs represent around 14% of total winter gas demand in the selected markets.

"Nuclear and hydro power [will] continue to sit towards or above five-year maximum levels for the time of year. This maintains our bearish view of gas demand across the top five European markets, projecting 33 GW through the remainder of W-24 (Dec-March), 8 GW below 2019-23 average for this time of the year," the analysts said.

While the early November surge in combined-cycle gas turbine output was relatively short-lived after wind power picked up in the week to Nov. 17, gas-fired generation in November was still set to rise year over year, a rare gain for the sector since 2022.

Market sources remain cautious as to how these dynamics will play out over the rest of the winter.

"The weather is not predictable, it's hard to know for sure what temperatures will be," a trader said. "A colder winter does not directly translate into higher gas consumption. [What happens] if we have sustained cold with sustained solar and sustained wind generation, especially since Europe's renewable capacity has been increasing?"

The wind lull in early November not only lifted month-ahead power prices but filtered through into gas markets.

German December baseload power has risen 30% since Nov. 1, settling Nov. 18 at Eur110.41/MWh ($116.89/MWh) on EEX -- with similar increases observed in the other major markets.

Growing renewables caps G4P demand

Installed solar and wind capacity in the EU5 has risen by 44% and 10% respectively since 2022, with combined capacity ending 2024 around 377 GW, Commodity Insights data showed.

Record solar generation over summer 2024 (April-September), averaging around 31 GW, helped reduce summer gas-for-power demand by over 30%.

Moving into winter, wind is forecast to average around 56 GW in Q1 2025, covering 25% of EU5 power demand for the period.

Next summer, meanwhile, average solar output is forecast to rise another 18% year over year, with Commodity Insights pegging the share of wind and solar power generation in meeting summer demand at 40%.

Coal-to-gas switching

Higher gas prices meanwhile could trigger some coal-to-gas switching, but volumes are limited due to recent coal plant closures.

The benchmark Dutch TTF gas contract hit a fresh 2024 high on Nov. 18, with Platts assessing the December contract at Eur46.87/MWh.

That compared to a Platts Coal Switching Price Indicator of Eur37.57/MWh on Nov. 18, this being the price at which a 40%-efficient coal plant turns more profitable to run than a 50%-efficient gas plant in Northwest Europe in December.

Analysts at Commodity Insights expect gas prices to remain above the coal-to-gas switching range.

"In terms of our Q4-24 price forecast, we have TTF at the top if not slightly above the coal-to-gas switching range so [it's] still out of favor compared to coal for power generation. Though in countries like the UK where effectively there's no more coal plants left, gas burn will have to make up the difference to meet power demand," said Daniel Prichard, an analyst at Commodity Insights.