Energy Aspects lowers gas-to-oil switching forecast despite record gas
Quantum Commodity Intelligence - Energy Aspects has lowered its forecast for gas-to-oil switching by the power sector in western Europe despite rocketing Dutch TTF natural gas prices to record highs Tuesday.
There will be a maximum of 34,000 bpd of incremental oil demand from utilities in Belgium, France, Germany, Italy, Spain, the Netherlands, and the UK ditching gas for gasoil and low sulfur fuel oil over the winter, the analyst group told Quantum Tuesday.
"Despite new record high gas prices, we do not expect a significant increase in liquids-fired power generation in Western Europe, owing to technical and logistical constraints," said Leon Izbicki, natural gas analysts for Energy Aspects.
A cargo of low sulfur fuel oil was offered out of Gothenburg amid the spike in natural gas prices to record higher, but the price was still only a mild $2/mt above forward prices in early January.
The spread between low sulfur fuel FOB cargoes in northwest Europe and high sulfur fuel oil barges in ARA also narrowed Tuesday to $70/mt Tuesday from $72/mt Monday, according to brokers.
Most of the switching will likely happen in France and Italy.
Power plants in France, where French utility Edf shut two nuclear reactors last week, accounting for 13% of the country's power capacity because of safety concerns, have an average switching capacity to oil-fired power generation of 137 MW.
Italy has the most, with an average of 159 MW of switching to oil-fired capacity per plant.
There are only limited volumes in other countries – UK plants have 75 MW on average, Germany has 63 MW, Spain has 25 MW, and Belgium has 17 MW.
Most switchable oil-fired capacity in Western Europe is designed to provide peak-load power supply, according to Energy Aspects.
But the dispersed location and size of smaller plants, under 100 MW capacity, likely means they lack the storage and technical capacity needed to run baseload demand.
"Substantially increasing the load factor of small liquids-fired power plants over prolonged periods of time would risk mechanical failures in plant equipment," said Izbicki.
"Furthermore, it would require frequent deliveries of fuel to guarantee adequate supply, which has not been tested before."
Many of these plants are also located near densely populated areas, and they risk complaints from the public should they ramp up oil-fired production, Izbicki added.
"Given these barriers, utilities are likely reluctant to sell power from liquids-fired generators on a month-ahead basis, which would commit them to sustained periods of production, and instead draw on day-ahead markets to sell power," he said.
