E.ON MarketReport May 2010

Transcription

1 E.ON MarketReport May 2010

2 Overview of April 2009 Welcome to May s edition of the E.ON MarketReport. This report provides an historical 12 month overview of the power, gas, oil, coal and carbon markets. In addition the E.ON MarketReport contains month to month commentary and price movements for each of these individual markets. During the power and gas markets saw increases compared to the start of the month, with front month contract prices approximately 9% and 16% higher respectively. During this period oil prices rose slightly after last months steady rise with prices approximately 3% higher at the end of the month compared to the start of the month. Power and gas Movements in the power and gas market Front month power Front month gas Annualised power Annualised gas Change in prices from April 2009 The average front month power contract price in was approximately 1% higher than April The average front month gas contract price in was approximately 8% higher than April The average Oct 10 Annualised power price in was approximately 24% lower than April The average Oct 10 Annualised gas price in was approximately 32% lower than April Monthly movement Front month power contract prices increased by approximately 9% over the course of, between a range of 34.50/MWh and 37.80/MWh. Front month gas contract prices increased by approximately 16% over the course of, between a range of 29.64p/th and 36.06p/th.

3 Oct 10 Annualised Power prices increased by approximately 13% over the course of, between a range of 37.67/MWh and 44.00/MWh. Oct 10 Annualised Gas prices increased by approximately 17% over the course of, between a range of 37.55p/th and 46.21p/th. Monthly by month review UK gas prices were boosted by a combination of a firming US gas market, gains in oil, continued storage injections and supply niggles from Norway. Month ahead power prices followed this upward direction. Coal and carbon also firmed during April adding support to the overall energy picture. March 2010 February 2010 January 2010 December 2009 November 2009 October 2009 September 2009 August 2009 July 2009 June 2009 Gas in general softened with expectations that Europe will remain over supplied throughout the summer. Fears over Norwegian flows during April supported the Front-Month price. Power across the curve witnessed slight falls generally moving in line with corresponding gas and falling coal prices. The front month power contract fell on moderating weather forecasts while contracts further out moved mainly in line with lower corresponding gas contracts. Losses were limited as coal and oil firmed towards the end of the month. Continued cold weather in the UK, Europe and other parts of the world has lead to increases in gas, coal & oil prices. These gas and commodity market gains together with a stronger prompt market have lifted prices along the forward curve. UK prompt prices increased through higher power demand and fuel costs. UK Forward Power slightly higher due to somewhat increased coal costs. Prompt gas moves up on cold weather forecast and reduced Norwegian imports. Bearish National Balancing Point gas keeps lowering the UK forward curve. UK spot prices decrease due to weather out-turning warmer than forecast and high power plant availability. UK Prompt Power up on higher fuel costs and tighter system whilst UK Forward Power continued bullish, hand in hand with strong energy commodities. UK gas prices moved higher on cold temperatures & low Norwegian imports. Spot power and UK forwards for 2010 increased due to recent increases in gas prices. Lower Norwegian flows had a bullish impact on near curve prices. Stronger Henry Hub and Brent Oil pushed gas curve prices up over September. The electricity forward market saw gains on the back of higher production costs as coal, gas and carbon all tracked up with oil and improved economic sentiment. With US curve prices plunging and bearish oil sentiment, products at the far end of the gas curve moved downward. A strengthening oil market set the course for a slightly bullish market during July. Gas prices were offset by a bearish carbon market. Ongoing strength in the oil market continued to provide support to the gas curve. Summer plant maintenance also sparked buying interest in the power market.

4 May 2009 Returning nuclear power plants weighed on the UK near prompt market. Traders agreed that projections for lower demand over the coming weeks also dampened any potential bullish sentiment. Oil Movements in the oil market Rolling front month Brent Crude oil Change in prices from April 2009 The average front month oil contract price in was approximately 40% higher than in April Monthly movement Front month oil prices increased by approximately 3% over the course of, between a range of $84.01/bbl and $87.25/bbl. Monthly by month review Positive figures from the Dow Jones industrial average helped support oil as prices hovered around the $85/bbl mark during April. Flight restrictions around Europe had little impact on the market. Once airspace reopened the oil market reacted with modest gains in anticipation of an increase in demand from the aviation industry. March 2010 February 2010 January 2010 Oil traded above $80/bbl pushed up by positive US economic data as well as healthy equity and commodity markets. All these factors contributed to the upbeat sentiment. Brent strengthened driven by a weaker US dollar and a stronger equity market. The Euro rebounded against the US dollar when the worst fears about Greece's public finances abated. Ongoing tensions between Western powers and Iran also supported the price. Brent reached its highest price since October 2008 mainly due to icy weather conditions that drove up oil demand. Heavily populated parts of the northern hemisphere such as Northeast USA, Northwest Europe and Central China all had temperatures below normal.

5 December 2009 November 2009 October 2009 September 2009 August 2009 July 2009 June 2009 May 2009 Oil prices fell after U.S. government inventory data showed larger-thanexpected builds in crude and gasoline stocks. Brent up to almost $80/bbl with a weaker dollar and positive economic data. Manufacturing data from USA and China that showed optimism for a turnaround in the economy and with it fuel demand. A large decline in crude inventories in the US supported the sentiment. Oil at its highest level in over a year driven by financials and market optimism rather than fundamentals. Brent crude halted its downward move and bounced back above $71.00/bbl on the back of better than expected US economic figures and higher crude inventory destocking. Latest US August industrial production, one of the key leading economic indicators for economic growth, showed another monthly increase and rose to 0.8% compared to previous month. Brent hit $75.00/bbl for the first time since October last year. The bulls in the market took hold of a combination of hopes for an economic recovery, weakness in the US dollar and a medium-term narrative of tightening balances to bid oil up. During July, markets have seen a significant upward trend with Brent and stock markets rising. Nevertheless, this is a result of the temporarily positive sentiment among financial markets rather than a substantial fundamental improvement in the world economy or oil markets. Crude oil price gains were lifted by positive manufacturing and industrial data from the United States and China, and stronger stock markets. Crude oil prices climb as a weaker US dollar and rising equity prices boosted investment in commodities. Global markets also strengthened after the G- 20 agreed on measures to fight the global recession at a meeting in London. Coal Movements in the coal market Forward coal 1 year Forward coal 2 year Forward coal 3 year

6 Change in prices from April 2009 The average Forward coal 1 year contract price in was approximately 1% higher than in April Monthly movement Forward coal 1 year contract prices increased by approximately 13% over the course of, between a range of $80.49/tonne and $94.21/tonne. Monthly by month review Ongoing strength in the oil markets helped support coal as forward prices posted gains during April. The European coal index was boosted as its Pacific counterpart firmed on the back of positive sentiment, a stronger energy complex & potential strike at South Africa s Richard s Bay coal terminal. March 2010 February 2010 January 2010 December 2009 November 2009 October 2009 September 2009 August 2009 July 2009 June 2009 May 2009 Cyclone off Australia's coast supports prompt coal prices; curve down on slowing Chinese imports expectations. Coal forwards moved up across the board toward month end driven mainly by oil markets and US dollar. Coal swaps started the year with a massive bull-run, supported by Chinese import demand from its tight domestic coal supply. Cheaper freight cost increased the attractiveness of imported coals for Chinese buyers. Chinese domestic coal prices continued to rise. This put pressure on global coal prices. The uptrend in coal swaps was supported by stronger oil prices and positive sentiment. Coal swap prices continued to rise on the back of stronger oil prices and higher freight costs. Coal prices are firming on the back of stronger oil. In Asia demand fundamentals look bullish for coal: in India, every second coal-fired power plant is facing fuel availability issues and some Chinese small mines were shut-in after mining accidents. Prices eased along the forward curve as Chinese importing interest continued to fade. Coal swap prices fell reflecting the weak fundamentals - ample supply. Stronger physical coal trades and bullish oil prices sent both the short and the long end of the API#2 forward curve up but prices eased back later on weak fundamentals. The European demand situation remains very weak in the UK over 15 Mt of coal on stock equates to 172 days forward cover. Coal prices fell on weak fundamentals high stockpiles in Europe as demand remains weak. The combination of higher front month Brent crude oil price, and a weakening US dollar supported the persistent bullish sentiment in the coal market.

7 Carbon Carbon overview Carbon Permits have become an increasingly important driver for the price of UK power as more than 70% of UK power stations use coal or gas. Burning coal and gas releases harmful emissions into the environment. Higher generation means more carbon emissions are produced. Therefore the cost of clean power also takes into account the cost of carbon permits traded under the EU scheme. Cost of producing clean power = price of generation fuel + price of carbon Burning coal generates more than twice as much carbon as burning gas, hence if the price of carbon increases, the effects are felt more strongly in coal generation. Carbon price therefore directly affects the demand for both gas and coal as a generation fuel. Monthly by month review Higher German power prices and generally bullish market sentiment helped lift carbon during April. Carbon was trading at its highest levels since December March 2010 February 2010 January 2010 December 2009 November 2009 October 2009 September 2009 August 2009 July 2009 June 2009 May 2009 Carbon was trading within a tight range during April. Prices fell as the market prepared for industry sell-off of allowances, while a stronger energy market supported the gains. Prolonged nuclear generation in the German market added to the bearish sentiment. Carbon prices softened amid a bearish energy complex with the breaking of several technical levels responsible for the fall in prices. Carbon prices came off while digesting the results of the Copenhagen negotiations, however, started quite strong into the new year. Prices have been supported by a combination of positive political news and higher natural gas. Climate negotiations in Copenhagen have started with news that the US will move to regulate greenhouse gas emissions. Generally the market was traded down on a lack of new drivers as all waited for the summit results. Carbon increased over October. Mainly driven by the energy complex where German power was bullish. Carbon plunged after Poland won a court case over its Phase II EUA allocation. The market was split on the effects of the decision and the result was a high volatility in the CO 2 market over the end of September. Gains are attributed to a firming energy complex, coupled with market participants buying back their short positions. The latest fall in prices might have been attributed to a weakening energy complex, however, the correlation between oil and carbon remains poor. Carbon is very much trading on technical s rather than fundamental drivers. Strength in oil and subsequent strength in German power pushed carbon prices towards 15 in the first 2 weeks.

8 Key dates The Carbon Reduction Commitment Energy Efficiency Scheme (CRC) officially begins 6 May 2010 General Election September 8/ Energy Event 2010, National Motorcycle Museum September 2010 Deadline for CRC registration Useful web links For more information about E.ON, the following links may be useful: Business energy Business Energy Connections Sustainable Energy Carbon Reduction Commitment eonenergy.com/business eonenergy.com/bec eonenergy.com/sustainable eonenergy.com/crc The following links provide further information on the energy industry: Defra The Department for Business, Enterprise and Regulatory Reform (BERR) formally DTI The Department of Energy and Climate Change (DECC) Health and Safety Executive National Grid Met Office Ofgem Environment Agency Consumer Focus formally Energywatch The Carbon Trust The Energy Institute The Energy Saving Trust The National Energy Foundation Petroleum Economist Live oil prices defra.gov.uk berr.gov.uk decc.gov.uk hse.gov.uk nationalgrid.com metoffice.gov.uk ofgem.gov.uk environment agency.gov.uk consumerfocus.org.uk thecarbontrust.co.uk energyinst.org.uk est.org.uk nef.org.uk petroleum-economist.com thisismoney.co.uk/oil-price Legal disclaimer All rights (including, without limitation, copyright and other intellectual property rights) in and to this report and its contents (the report) are owned by us or are licensed to us by the owner of the rights. You may not copy, adapt, modify, sell, license, distribute, transmit, display, publish or create works derived from this report or any part thereof without our prior written consent (except as permitted under applicable law). Unauthorised use of this report may give rise to a claim for damages and/or be a criminal offence. This report has been prepared in good faith for general information and interest only and may be subject to change without notice. Although we have taken all reasonable steps to ensure the accuracy of this report, we are not responsible for any inaccuracies and make no representation and give no warranty as to the report s accuracy. Nothing in this report purports or is to be construed as purporting to provide any financial, investment or professional advice or other advice or recommendation and nothing shall be taken to constitute the provision of financial, investment or other professional advice in any way. If you are unsure of any contents of the report, you should seek independent financial advice. This report is provided to you at your own risk and we do not accept liability whether in contract, negligence, tort or otherwise for any damage or loss (including direct, indirect or consequential loss, pure economic loss, loss of profits, loss of business, depletion of goodwill and like loss) howsoever caused.

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