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Peak gas-to-power demand in Europe could rise 39% by 2030: RWE

Highlights

Peak gas-to-power demand in Europe could rise as much as 39% by 2030, according to Andree Stracke -- chief commercial officer for origination and gas supply at RWE Supply and Trading -- who addressed the Flame conference in Amsterdam this week.

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In what Stracke said was a "significant increase in gas-to-power demand over the next 10 years", RWE's forecast for gas-fired generation in 2030 equates to 60-80 Bcm/year.

The forecast compared with RWE's projections for overall European gas demand in 2030, which amounted to 227 Bcm/year -- an anticipated drop of 21% -- while also setting an estimated range of 178-275 Bcm/year, with the forecast representing the most likely scenario.

"Coal-to-gas switching is the only route to demand growth in Europe. We are already the process of switching from coal to gas, and this has happened over the last two years," Stracke said.

"[We saw] peak demand in gas in 2010, after that gas [offtake] went down significantly until 2016. Carbon prices also fell. Now, on the forward curve ... we see an overlap between coal and gas is getting closer and closer. Over the last two years, the price of carbon has risen. It has seen a significant increase."

Generating Investment

Stracke outlined some of the challenges faced by large scale gas-to-power operation.

"I saw this morning in our dispatching sector at RWE that gas was pretty much zero. These prices yesterday [arose despite] it being a cold day, but it was sunny and windy. The injection of gas was significant, but [consumption] demand was not that high," he said.

With such periods of inactivity, the economics of new gas-fired power plants or the purchase of capacity for existing facilities could be compromised.

"Who is paying for the new capacity? The answer is even if it is like the UK and France, and if there is a capacity market, the economics do not yet show and give us an investment interest right now to do it," Stracke said.

"So there are great thoughts right now to invest into open cycle gas turbines...in order to put them into a quick payback in three or four years."

OCGT power plants differ from more common CCGT facilities in that they are more expensive to run but enjoy quicker ramping-up lead times in order to make more-timely responses to meet portfolio requirements.

"We need a significant interest in prices -- and price peaks -- in the foreseeable future to invest in peak demand," Stracke said.

Feedstock gas sourcing was also identified as a potential deterrent to investment, with LNG seemingly questionable as a direct source to hedge a consumption profile.

"The question is how to bring in high investment if there is no competitive gas available at the same time. Committing to buy long-term LNG from the US on an Henry Hub indexed basis would not make the economics work," Stracke said.

"The dispatch of our gas plants in Europe are working on the gas market prices in Europe, so the TTF, NBP, NCG. There is a [liquid] market on this."

-- Neil Hunter, neil.hunter@spglobal.com

-- Edited by Dan Lalor, daniel.lalor@spglobal.com