Markets

As markets reel from the coronavirus crisis, prices available to oil and associated gas producers have fallen to single digits in Western Canada and turned negative in parts of North America, according to the International Energy Agency (IEA). Analysts expect some existing production will soon grind to a halt.

Origin Energy, the Australian upstream company and utility, has slashed its capital expenditure in reaction to the global Covid-19 outbreak but maintained guidance for earnings and profits in FY2020. CEO Frank Calabria reassured investors on the utility’s resilient balance sheet, saying there was “significant headroom” in its debt covenants at current oil prices.

Reacting to the freefall in energy demand due to coronavirus lockdowns, Moody’s has lowered its price band for Henry Hub gas to $2.00-$3.00 per million British thermal units (MMBtu) for 2020. Analysts said this forecast could be cut further if economic weakness due to the pandemic drags on.

Covid-19 contingency measures have slashed U.S. energy demand, so upstream companies try to sell the surplus abroad. Pipeline gas deliveries to Mexico and feedstock for LNG export terminals hit over 15 billion cubic feet per day (Bcf/day) in the week ending March 30, edging up further since.

As the UK is on lockdown and most people are working from home, the electric load on the grid has increased and spread. National Grid is coping mainly because factories, shops and rail are winding down, causing a 9% drop in electricity demand on March 23 with further falls ahead.

As China strives to rekindle its economy, after strict lockdowns in January and February to contain the coronavirus, energy demand slowly recovers. Beijing lowered gas prices for industrial users, but Wood Mackenzies deems it’s insufficient to stir a lost-demand recovery and new coal-to-gas switching.

Excess LNG supplies from the U.S. and diverted cargoes from Asia Pacific are heading for Europe, swelling gas storage and putting more downward pressure on prices as demand from industry and power generation stays subdued. IHS Markit says Europe's imports could swell to equal the monthly offtake of South Korea and Japan combined.

Stockpiles of domestic U.S. gas production will reach an all-time high in 2020, as drilling companies keep producing record volumes even though the coronavirus crippled domestic demand. Exporting excess LNG is not easy as Europe is in lockdown, but the first US LNG cargo for more than a year is heading for the Chinese port of Tianjin.

Rapidly falling oil prices since March 18, when Saudi Arabia started to flood the market, have pulled down seasonal gas and wholesale power prices in the UK. According to Cornwall Insights, Brent crude oil prices plunged over 60% so far in 2020, with seasonal gas and power contracts shedding 32.7% and 21.1%, respectively.

Halts in production and collapsing sales have hit Germany’s carmakers at a crucial time of transitioning to electric vehicles. Sales of e-cars are projected to fall by at least 20% this year, impacting electricity demand, while bailouts for manufacturers and suppliers could cost billions of Euros.

Industry lockdowns, caused by the coronavirus, have slashed electricity demand in most countries by around 15%. In Spain and California, where grid operators have to balance a substantially higher share of variable renewables, the lockdown “fast forwarded these power systems 10 years into the future,” the International Energy Agency (IAE) commented.

Though short-term profits of power and water utilities are hit by the lockdowns of energy-intensive industries to contain the coronavirus pandemic, investors are seeing energy companies as “safe havens” as a recession looms large and stock markets plunge. Amid falling bond yields, investors turn to steady payouts from regulated utilities.

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News in Brief

Tokyo Gas snaps up US shale assets

July 31 – The Japanese utility Tokyo Gas has agreed to raise its stake in the U.S. firm Castleton Resources to 70 percent from 46 percent to increase its foothold in shale gas production in Texas and Louisiana.  Castleton Resources holds acreage in the Haynesville and Cotton Valley formations. The transaction is scheduled to be completed on August 14.

Electrical PE market to grow 1.7% through 2027

July 30 – The market for electrical protective equipment (PE) in North America, valued at $2,787 million in 2019, is forecast to rise at an annual rate of 1.7 percent to reach $3,163 million by 2027. Main growth drivers, according to ResearchandMarkets, are ongoing power transmission projects in the context with U.S. LNG export infrastructure expansions.

GE wins turbine order from Italian paper mill

July 29 – DS Smith Paper Italia has ordered a GE LM6000PF aero-derivative gas turbine for its paper mill in Lucca, Italy. The paper mill is currently powered by two aero-derivative turbines, and the additional unit will increase plant efficiency by 2%, while assuring steam supply for the industrial process.

Aceleron secures £2m green energy investment

July 28 – UK battery developer Aceleron today announced receipt of a £2 million equity investment from BGF and Mercia Asset Management. Aceleron is BGF’s second investment into a pure clean technology, signalling a shift in behaviour as more and more fund managers support a green recovery and the UK’s policy of net-zero carbon by 2050.

NRG buys Centrica’s North American arm for over $3.6bn

July 27 – U.S. utility NRG Energy has agreed with Centrica to acquire the latter’s North American subsidiary Direct Energy for $3.625 billion in an all-cash transaction. The transaction will diversify NRG’s earnings by adding more than three million retail customers and generate an estimated $740 million in adjusted EBITDA upon closing.

Siemens rolls out Comfy app

July 24 – Siemens is deploying its workplace experience solution Comfy across its global offices, including major utility customers. The aim is to equip approximately 600 company locations by October 2020.

BlackRock puts $18bn into sustainable investment

July 23 – Sustainability aspects are poised to bring about "fundamental change" to the way financial market actors operate, said Philipp Hildebrand, vice head of U.S. investment company BlackRock. About 18 billion dollars have been put into BlackRock's sustainable investment products since the beginning of 2020, he told the German business daily FAZ, arguing this would be "only the beginning" of a much larger shift in investment practices.

Vaca Muerta output slows

July 22 – Argentina has resorted to importing LNG for the Southern Hemisphere winter as domestic production at the vast Vaca Muerta shale formation fell in the first half of 2020. State-owned IEASA purchased 28 LNG cargoes at average prices of $2.87 million British thermal units (mmBtu).

GE to implement air quality control systems in India

July 21 – GE Power India Ltd (GEPIL) has won three contracts with a combined value of $112.57 million to supply air quality control systems. One semi-dry flue-gas desulfurization (FDG) unit will be installed for Hindalco Industries’ 1x150MW power plant at the Aditya aluminium smelter in Sambalpur. A wet FDGs system will be installed on behalf of NTPC for their Feroze Gandhi Unchahar thermal power plant (2x210MW plus 2x210 MW plus 1x210MW units) in Rae Bareli, Uttar Pradesh.

Wärtsilä CEO sees “tough” H2 ahead

July 20 – Wärtsilä CEO Jaakko Eskola has told analysts he sees a “tough second half of the year ahead,” as the Finish manufacturer seeks to mitigate Covid-related business disruptions. In the segment of up to 500 MW, Wärtsilä’s market share fell from 9% to 8%, while orders for gas- and liquid- power plants increased by 1% to 17.8 GW during the twelve-month period ending in March 2020.

GE launches update to digital plant software

July 17 – GE Digital has unveiled updates to its digital power plant software: Proficy Plant Applications, Proficy Operations Hub, Proficy Historian, and Proficy CSense. The software accelerates digitization for industries and integrates related onsite power generation units.

Germany EEG fund slips into the red

July 16 – Germany's green energy fund, funded through the renewable energy surcharge (EEG levy), has slipped into the red for the first time since 2013, according to TSO data. The account, funded by end-customers through a surcharge on their power bill, fell from about €2 billion in available funds to €-1.16 billion in the first six months of 2020.

China seen overtake Japan as worlds’ largest LNG buyer by 2025

July 15 – The International Energy Agency (IEA) expects China to overtake Japan as the world’s biggest LNG buyer with imports of 128 Bcm a year by 2025, equivalent to around 174 million tonnes. However, IEA analysts cautioned this scenario is “highly dependent on China’s future policy direction” and whether that includes an ongoing push for coal-to-gas switching for industry, residential heating and power generation.

IEA stages Clean Energy Transitions Summit

July 14 – Ministers from dozens of countries, accounting for over 80% of the world economy, have participated in the first Clean Energy Transitions Summit organised by the International Energy Agency (IEA). Dr Fatih Birol, the IEA’s Executive Director, said there “clearly is momentum” behind a sustainable recovery from the economic impacts of the Covid-19 pandemic. Participants agreed to reconvene in mid-2021.

Siemens Energy to exit coal

Jul 13 – Newly formed technology company Siemens Energy wants to phase-out any operations and technology to related to coal-fired power generation, CEO Joe Kaeser said, without giving a specific timeline. Siemens had been harshly criticised earlier this year for participating in the Adani coal mine project in Australia.

Statkraft, GE enhance GB grid stability

July 10 – Statkraft and GE Power Conversion are working together to stabilise Britain’s power grid. To that end, GE will manufacture and install two Rotating Stabiliser synchronous machines at Statkraft’s site in Keith, Moray. Statkraft was awarded four stability contracts (two at Keith and two at Lister Drive) by National Grid ESO (NGESO) earlier this year.

Siemens Energy spin-off approved

July 9 – A large majority of Siemens shareholders have voted to approve the spin-off of the company’s energy business. The spin-off was approved by 99.36 percent of capital stock represented at today’s extraordinary shareholders’ meeting.

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