Markets

Peaking power plants in France, mostly gas combined-cycle units, are lying idle in recent days as power demand from industries fell 26.4% due to the lockdown, extended until at least May 11. Spark spreads, the profit margin for burning gas to generate electricity, are deep in the red.

As the U.S. has become the epicentre of the coronavirus pandemic, grid operators have seen not only reduced weekday electricity demand relative to expectations for this time of year and current weather but also changes in daily electricity usage profiles. The morning peak, for example, is now later and with a more gradual ramp.

Debt financiers of U.S. fracking firms are preparing to directly manage distressed energy assets to avoid debt write-offs in the event of bankruptcies. Bank of America, Citigroup, JP Morgan Chase and Wells Bank are understood to set up holding companies for distressed oil and gas producers as the industry owes over $200 billion to lenders.

OPEC producers and Russia, supported by the U.S. and Mexico, have agreed to cut output by about 10%, or 9.7 million barrels per day, after demand slumped due to coronavirus lockdowns. Though oil prices did not jump in early trading in Asia today, Wood Mackenzie says the supply cuts will lift oil and gas prices “significantly” starting from the second quarter.

Demand destruction due to lockdowns has shifted the relative economics of Europe's fossil power generators towards gas. Clean spark spreads are 10-14 EUR/MWh higher than dark spreads, but lower power prices mean it's still insufficient to see positive margins for CCGTs in Germany or France.

As China returns to work and energy demand recovers, four U.S. LNG cargoes are en route to Chinese import terminals. Two cargoes are seen heading for Tianjin and analysts suspect the buyers are CNOOC or Sinopec, which are likely to use part of the regasified LNG for power generation.

Lockdowns will lead to more hours of negative wholesale electricity prices at the European Energy Exchange (EEX) this year. With many industries shut, energy use in Germany is forecast to fall 6% while wind and solar power output remains high, pushing prices below zero.

Though China’s economy and gas demand is picking up, the coronavirus pandemic chocked energy consumption elsewhere. Delivered gas prices into Northeast Asia today fell below $2.40/MMBtu, hence Wood Mackenzie warns spot LNG prices in Asia might soon drop below breakeven costs of U.S. upstream companies, causing production shut-ins.

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.

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News in Brief

BelGAS launches new pressure regulator

May 29 – BelGAS has introduced its new P1098 High-Capacity Pressure Reducing Regulator, a large-volume regulator for natural gas, propane and other fuels. The pilot-operated device has a large-area actuator diaphragm, allowing for fast and accurate response to modulating gas flow conditions. It is adaptable for low to extra-high pressure—up to 400 psi main valve inlet.

GE to sell lightning business

May 28 – GE has signed a definitive agreement to sell its lighting business to Savant Systems, a provider of smart homes. CEO H. Lawrence Culp called the divestment “an important step in the transformation of GE into a more focused industrial company.” The transaction is expected to close in mid-2020.

China’s fuel demand recovers

May 27 – The Chinese government has lifted restrictions on private travel since April which pushed up demand for transport fuels. Gasoline demand has recovered particularly fast and is expected to return to last year’s levels by June 2020. Wood Mackenzie estimates gasoline consumption to reach 3.4 million barrels per day (b/d) in the second quarter, down just a 0.8% year on year. Diesel or gasoil demand is expected to reach 3.4 million b/d in Q2 2020, a 3% decline year-on-year. Overall, China’s oil demand is seen rise a “modest” 13.6 million bpd, or 2.3%, in the second half of 2020.

Wärtsilä to retrofit CHP in Spain

May 26 – The Finish engine maker Wärtsilä has bagged an order to supply and install a 34SG gas-fuelled engine generating set for Rofeica Energia's combined heat and power plant in Barcelona, Spain. The installation of the gas engine will allow Rofeica to switch the CHP from heavy fuel oil to gas-fuelled operation, reducing emissions.

New York body rejects William’s plans for gas pipeline expansion

May 21 – New York’s and New Jersey’s state bodies for environmental conservation have rejected Williams’ plans for the Northeast Supply Enhancement project, designed to transport 400 million cubic feet per day of gas from Pennsylvania to New York. The state bodies had already denied wetland permits in 2019, but Williams pipeline subsidiary Transco filed another application with the U.S. Federal Energy Regulatory Commission (FERC), arguing firm services under the project were agreed with UK’s National Grid for customers in New York City districts of Brooklyn, Queens, Staten Island and Long Island.

UK inflation at 4-year low amid falling energy costs

May 20 – The rate of inflation in the UK has fallen to a four-year low as the pandemic pushed down global oil and fuel prices which translate into lower wholesale power prices. The consumer price index fell to an annual rate of 0.8% in April, down from 1.5% in March, according to the Office for National Statistics.

Deficit grows in German green energy fund

May 19 – German regional grid operator TransnetBW has warned of a growing shortfall in the country’s fund for green energy sources, financed under the so-called renewable energy (EEG) levy. TransnetBW, the TSO in southwest Germany, said “due to the EEG cost allocations defined for 2020, we anticipate there will be a negative year end bank account balance in the high three-digit million euro range for 2020.”

Spanish gas companies ‘resilient’

May 18 – Spain’s regulated gas companies “should prove to be resilient” to external shocks arising from coronavirus containment measures, Standard & Poor’s analysis finds, calculating with an average drop in EBITBA at less than 3% in 2020. A new remuneration framework for 2021-2026, recently enacted by the Spanish government, provides enhanced visibility rated grid operators amid the pandemic.

German electricity prices second highest in EU

May 15 – Taxes and the renewable energy surcharge have pushed up Germany’s household electricity prices to the second highest level in Europe, topped only by prices in Denmark. While Danish households paid 29.2 Euros per 100 kWh on average in the second half of 2019, prices in Germany averaged 28.7 Euros, according to the EU statistics office Eurostat.

Calpine’s Q1 earnings fall

May 14 – Calpine, America’s largest generator of electricity from gas and geothermal, has reported a net income of $128 million for the first quarter of 2020, down from $175 million in the prior year period. Lower commodity margins and unfavourable change in income taxes were partially offset by earnings from hedge positions for the three month ending March 31.

Siemens to supply hybrid plant in the Philippines

May 13 – Berkley Energy has contracted Siemens Energy to build a hybrid power project on the island of Mindoro in the Philippines. The project links 16 MW wind power with battery storage, stabilizing energy supply in a remote location with a weak link to the grid and reducing its dependence on diesel.

U.S. energy emissions fall

May 12 – Energy-related carbon emissions in the United States have fallen more than energy consumption, down 2.8% over the course of last year to 5,130 million metric tons (MMmt). Power sector emissions were down 145 MMmt, due to a switch from coal to gas and renewables. In April 2020, emissions experienced another unprecedented fall in due to Covid-19 lockdowns.

MAN expands Omincare concept

March 11 – MAN Energy Solutions’ service brand has extended its ‘PrimeServ Omnicare’ concept from turbomachinery to the marine and power segments. The one-stop service solution is now also applicable for maintenance of third-party machinery, including engines, turbochargers and related auxiliaries.

MIVOLT launches cooling fluid

May 7 – MIVOLT, part of the British company M&I Materials, has launched two specialist fluids to improve cooling efficiency at data centres. The electricity demand of data centres is forecast to rise to 20% of global supply to accommodate lifestyle changes like 5G internet network, autonomous vehicles and bitcoin mining.

Germany adds 1,300 km to power grid

May 6 – Germany has made progress in expanding its strained power grid. According to the Federal Network Agency (BNetzA), over 1,300 kilometres of new power transmission lines have been built and another 830km approved. A further 3,600km are planned to be built by 2030 to alleviate grid bottlenecks and allow transporting rising volumes of offshore wind southbound.

 

 

 

Oman nationalizes first IPP

May 5 – Manah Power, the first privately-run Independent Power Project (IPP) in Oman, has been transferred to state ownership, following the expiry of a Power Purchase Agreement (PPA) between United Power Company and state-owned OPWP. Manah IPP was developed under Build-Own-Operate-Transfer (BOOT) model, which stipulates an eventual nationalization of the assets – a feature absent in subsequent IPPs.

U.S inventories at record highs

May 4 – Inventories for crude oil and natural gas have reached a new record high in the United States, as fuel demand declines both for transport and the electric power sector. From March 13 – when a national emergency was declared due to the Covid-19 pandemic – to April 24, U.S. commercial crude oil inventories increased by 74 million barrels, or 16%, according to government figures. The acute scarcity of crude storage on April 20 led to a sell-off of future contracts at negative prices.