Friday, January 22, 2016

Natural gas-fired power plants in Europe are earning money again.

Natural gas-fired power plants in Europe’s two biggest electricity users are earning utilities money again.

German gas-fired plant profitability at times of peak demand turned positive on Dec. 7, rising to the highest since February 2012 on Thursday, while gas units that generate around the clock in France have been profitable for seven weeks, the longest stretch in four years, according to data compiled by Bloomberg. That came after benchmark European gas prices fell 12 percent in 2016, extending last year’s 31 percent drop.

“More gas plants are in the money at current power and gas prices,” said Omar Ramdani, head of analysis at RheinEnergie Trading GmbH in Cologne. “If it pays off for a gas plant to produce several hours and not a whole day, it is looking positive right now.”

month-ahead German clean spark spread

While gas produces about half the emissions of coal when used to generate electricity, making it a greener option to back up intermittent wind and solar output, the fuel has struggled to compete against more profitable coal, forcing utilities from EON SE to Statkraft AS to close gas units. The price of the cleaner fuel in Europe will probably fall further as cold weather ends and oil’s slump feeds into long-term contracts, Societe Generale SA said last week.

“We’re now in a situation where the most efficient gas is replacing the least efficient coal plants,” Marcus Bokermann, director of market strategy at Vattenfall AB’s asset optimization and trading business, said Jan. 17. “There’s still a long way to go until least efficient gas pushes out most efficient coal but we have started. This has impact on overall emissions in Europe.”

The month-ahead German clean spark spread, a measure of gas plant profitability that takes account of fuel, power and emission costs, for the peak hours of 8 a.m. to 8 p.m. fell 3.5 percent to 6.07 euros ($6.58) a megawatt-hour on Friday, after reaching 8.45 euros on Thursday. In France, the measure for baseload plants that operate 24 hours a day rose to 5.72 euros a megawatt-hour on Friday.
Nuclear Competition

Engie SA doubled the output of four of its French gas-fired plants in 2015 from a year earlier, including a unit in Fos-sur-Mer brought back after being idled, Le Figaro reported Jan. 21. Gas prices are low enough that stations in France will compete with nuclear to provide the lowest cost generation, according to Bruno Brunetti, senior director of electricity at Pira Energy. France gets about 75 percent of its power from reactors.

“It is starting to be ugly as we head towards nuclear reactors ramping down in the short term” as gas gets cheaper, he said by phone from New York.

So far this winter, Europe’s gas consumption has been about 6 percent below normal, said Meredith Annex, an analyst for Bloomberg New Energy Finance in London. Rising spark spreads may change that, she said.

“If there’s a driver for gas demand in Europe, it will come from the power market,” Klaus Schaefer, chief executive officer of EON SE’s Uniper unit, said Jan. 20.

Monday, January 18, 2016

Oil Prices Fall Below $30 a Barrel

Oil resumed its seemingly inexorable slide on Friday with prices on both sides of the Atlantic slipping below $30 a barrel as investors braced for the full return of Iranian barrels to the market.

Amid expectations that sanctions linked to Iran’s nuclear programme could be lifted as soon as this weekend, Brent, the international oil marker, dropped $1.40, or more than 4.5 per cent, to a fresh 12-year low of $29.46 barrel.

Although Iranian officials had signalled towards the end of 2015 that sanctions could be lifted as early as January, oil market observers and western diplomats had said it would take months longer.Meanwhile, West Texas Intermediate, the US oil benchmark, fell $1.77 — almost 6 per cent — to $29.41. Both prices rallied on Thursday as speculators betting against oil closed some of their positions. Brent has had one of its worst starts to a year on record, falling 21 per cent.

“Signals now point to Iran reaching ‘Implementation Day’ at least two to four months sooner than we and the market initially expected,” said analysts at Barclays in a report.

Iran claims it will be able to increase production by 500,000 barrels a day immediately after the lifting of sanctions and within seven months reach its pre-sanctions level of at least 3.4m b/d.

While oil analysts believe these targets are hugely ambitious, any extra Iranian barrels hitting the market will add to a global supply glut that has pushed prices down more than 70 per cent since mid-2014. It could also delay the rebalancing of the market.

“Global macroeconomic concerns are mounting . . . Opec supplies are rising . . . and non-Opec supply is not adjusting fast enough, meaning that there is still further downside risk to prices this quarter,” the Barclays analysts said.

Demand was one of the few positives in the oil market last year as motorists enjoyed the benefit of lower prices at the pump. It is also one of the factors Saudi Arabia and its Gulf allies in Opec are banking on to rebalance a market that is oversupplied by at least 1m barrels day. The other is slowing output from high-cost suppliers such as US shale companies.In recent weeks further signs of a slowdown in China, whose growth led the rise in global oil demand over the past decade, have added fears of slowing consumption to massive oversupply.

On Friday BHP Billiton, the world’s biggest resources company, wrote down the value of its US shale assets by $7.2bn and placed its development plans on hold.

The extent of the oil market glut was also highlighted on Friday by Euronav, a leading operator of very large crude carriers (VLCC). These are vessels that are capable of hauling more than 2m barrels of crude around the world.“Oil and gas markets have been significantly weaker than the industry expected,” said BHP chief executive Andrew Mackenzie. “We responded quickly by dramatically cutting our operating and capital costs, and reducing the number of operated rigs in the onshore US business from 26 a year ago to five by the end of the current quarter.”

The company and its rivals have enjoyed a sharp increase in rates as producing countries have been forced to ship their crude longer distances to find customers.

Euronav said charter rates for VLCCs had averaged $62,000 a day in the fourth quarter, more than double the level of a year ago.

“Demand has been and continues to be solid,” the company said. “Vessel supply remains moderate with only a handful of confirmed additional newbuilding orders placed since the end of the third quarter 2015 and for delivery scheduled in 2018.”