Analys

When affordable gas and expensive carbon puts coal in the corner

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1 år sedan

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14 mars, 2024

Coal and nat gas prices are increasingly quite normal versus real average prices from 2010 to 2019 during which TTF nat gas averaged EUR 27/MWh and ARA coal prices averaged USD 108/ton in real-terms. In the current environment of ”normal” coal and nat gas prices we now see a darkening picture for coal fired power generation where coal is becoming less and less competitive over the coming 2-3 years with cost of coal fired generation is trading more and more out-of-the money versus both forward power prices and the cost of nat gas + CO2. Coal fired power generation will however still be needed many places where there is no local substitution and limited grid access to other locations with other types of power supply. These coal fired power-hubs will then become high-power-cost-hubs. And that may become a challenge for the local power consumers in these locations.

Bjarne Schieldrop, Chief analyst commodities at SEB — Bjarne Schieldrop, Chief analyst commodities, SEB

When affordable gas and expensive carbon puts coal in the corner. The power sector accounts for some 50% of emissions in the EU ETS system in a mix of coal and nat gas burn for power. The sector is also highly dynamic, adaptive and actively trading. This sector has been and still is the primary battleground in the EU ETS where a fight between high CO2 intensity coal versus lower CO2 intensity nat gas is playing out.

Coal fired power is dominant over nat gas power when the carbon market is loose and the EUA price is low. The years 2012, 2013, 2014, 2015 were typical example-years of this. Coal fired power was then in-the-money for around 7000 hours (one year = 8760 hours) in Germany. Nat gas fired power was however only in the money for about 2500 hours per year and was predominantly functioning as peak-load supply.

Then the carbon market was tightened by politicians with ”back-loading” and the MSR mechanism which drove the EUA price up to EUR 20/ton in 2019 and to EUR 60/ton in 2021. Nat gas fired power and coal fired power were then both in-the-money for almost 5000 hours per year from 2016 to 2023. The EUA price was in the middle-ground in the fight between the two. In 2023 however, nat gas was in-the-money for 4000 hours while coal was only in-the-money for 3000 hours. For coal that is a dramatic change from the 2012-2015 period when it was in the money for 7000 hours per year.

And it is getting worse and worse for coal fired generation when we look forward. That is of course the political/environmental plan as well. It is still painful of course for coal power.

On a forward basis the cost of Coal+EUA is increasingly way, way above the forward German power prices. Coal is basically out-of-the money for more and more hours every year going forward. It may be temporary, but it fits the overall political/environmental plan and also the increasing penetration of renewable energy which will push aside more and more fossil power as we move forward.

But coal power cannot easily and quickly be shut down all over the place in preference to cheaper nat gas based power. Coal fired power will be the primary source of power in many places with no local alternative and limited grid capacity to other sources of power elsewhere.

The consequence is that those places where coal fired power generation cannot be easily substituted and closed down will be ”high power price hubs”. If we imagine physical power prices as a topological map, geographically across Germany then the locations where coal fired power is needed will rise up like power price hill-tops amid a sea of lower power prices set by cheaper nat gas + CO2 or power prices depressed by high penetration of renewable energy.

Coal fired power generation used to be a cheap and safe power bet. Those forced to rely on coal fired power will however in the coming years face higher and higher, local power costs both in absolute terms and in relative terms to other non-coal-based power locations.

Coal fired power in Germany is increasingly very expensive both versus the cost of nat gas + CO2 and versus forward German power prices. Auch, it will hurt more and more for coal fired power producers and more and more for consumers needing to buy it.

And if we graph in the most efficient nat gas power plants, CCGTs, then nat gas + CO2 is today mostly at the money for the nearest three years while coal + CO2 is way above both forward power prices and forward nat gas + CO2 costs.

EUR/MWh — Source: SEB calculations and graph, Blbrg data

Number of hours in the year (normal year = 8760 hrs) when the cost of coal + CO2 and nat gas + CO2 in the German spot power market (hour by hour) historically has been in the money. Coal power used to run 7000 hours per year in 2012-2016, Baseload. Coal in Germany was only in-th-money for 3000 hours in 2023. That is versus the average, hourly system prices in Germany. But local, physical prices will likely have been higher where coal is concentrated and where there is no local substitution for coal in the short to medium term. Coal power will run more hours in those areas and local, physical prices need to be higher there to support the higher cost of coal + CO2.

Relaterade ämnen:bjarne schieldrop carbon coal seb analys

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Crude prices hold gains amid fresh tariff threats

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1 timme sedan

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Brent crude prices have held onto gains after rising for four consecutive days, increasing by USD 2.8 per barrel over the past week (since last Tuesday). Late last week, we saw a significant uptick in prices, primarily driven by U.S. sanctions on Iran and a surge in speculative long positions, which rose by as much as 45 million barrels week-on-week (WoW).

Ole R. Hvalbye, Analyst Commodities, SEB

Today, crude prices remain supported as fresh threats from the U.S. president add to upward momentum. President Trump has signaled that he will impose a hefty 25% tariff on countries purchasing crude oil from Venezuela, further tightening the global supply side. This move is naturally bolstering crude prices as concerns over reduced supply growth.

This latest development is particularly challenging for China’s private refiners (Teapots), which are already facing weak refining margins and excess capacity. The imposition of tariffs on Venezuelan crude could exacerbate these difficulties, making it even harder for these refineries to stay competitive.

As of now, Brent crude is trading at USD 73.3 per barrel, having increased by USD 0.2 per barrel since the market opening.

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Crude oil comment: Ticking higher as tariff-panic eases. Demand growth and OPEC+ will be key

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1 dag sedan

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24 mars, 2025

Redaktionen

Higher last week along with equities and Iran sanctions. Brent crude gained 2.4% last week. It closed the week at USD 72.16/b and traded within a range of USD 69.9 – 72.51/b with the high of the week being set on Friday. New US sanctions towards Iran was one of the drivers while a continued rebound in global equities was an important ingredient as well. Brent crude is up 0.2% this morning at USD 72.3/b along with positive equities.

Bjarne Schieldrop, Chief analyst commodities, SEB

First round panic over harsh Trump tariffs is lifting with hopes for more targeted tariffs. Concerns for global economic growth and oil demand growth due to unexpectedly harsh Trump tariffs initiated a sharp selloff in equities as well as oil. Crude oil and equities have rebounded together as the first-round panic on Trump tariffs has lifted. Equity futures are rising 0.5% or more this morning on hopes that the next round of Trump tariffs will be more targeted and less broadly damaging. Looking at equities this morning one should expect Brent to move yet higher today.

Speculators are putting money back into the market. Net long speculative positions rose 45 mb over the week to Tuesday last week following an almost non-stop selloff since late January.

No oil market surplus yet. The question is mid-year onwards. It’s about oil demand growth and OPEC+. The global oil market is not yet running a surplus, but it will likely do so by mid-year. Key will be:

1) How will global oil demand growth develop in response to Trump tariffs?

2) Will OPEC+ decide to lift production yet higher after its first hike in April?

OPEC+ has already decided to lift production in April. Our impression is that that decision was partially influenced by Donald Trump asking for more oil and a lower oil price. I.e. that OPEC+ (controlled by Russia and Saudi Arabia) now has a slightly different approach to how they set production targets. I.e. that it is no longer just about price but also about the political relationship with Donald Trump. The Joint Ministerial Monitoring Committee (JMMC) will meet on 3 April to decide what to do in May.

Net long speculative positions in Brent crude and WTI rose 45 mb over week to Tuesday last week.

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Analys

Oil prices climb, but fundamentals will keep rallies in check

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1 vecka sedan

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18 mars, 2025

Redaktionen

Brent crude prices have risen for three consecutive days, gaining USD 1.7 per barrel since last Thursday’s close. On Friday afternoon, prices briefly dipped to USD 69.9 per barrel before rebounding to a high of USD 71.8 per barrel yesterday morning. As of this morning, Brent crude is trading at USD 71.67 per barrel, up USD 0.77 per barrel since midnight.

Why?

1. Chinese economic data
Two days ago, China released better-than-expected consumption, investment, and industrial production data for the start of the year, signaling economic resilience despite the need for further stimulus. With Donald Trump’s tariffs posing a risk to growth, China has responded by committing to policies aimed at boosting incomes, stabilizing equity and real estate markets, and reviving economic consumption – all of which naturally support crude and refined product demand.

2. U.S. strikes on Yemen’s Houthis
The U.S. airstrikes on Yemen’s Houthis on Sunday, March 16 served as a stark reminder of geopolitical risk, a factor that has not been fully priced into the market recently.

3. Rising tensions in the ME
Escalating tensions in the Middle East are currently (short-term) overshadowing concerns about a potential global oversupply. Overnight, Israel launched a series of military strikes on Gaza, breaking a nearly two-month ceasefire.

4. U.S. sanctions on Iran
Iran’s Oil Minister stated over the weekend (March 15) that Iranian oil exports are “unstoppable” and that Iran will not relinquish its share in the global oil market. The new U.S. administration has already imposed sanctions on Iranian crude, but these have yet to impact production levels significantly.

As of February 2025, Iran’s crude production stood at 3.23 million barrels per day (bpd), remaining above 3 million bpd since September 2023 (Platts data). Of this, Iran exports approximately 1.7 million bpd. For comparison, under Trump’s previous presidency, the U.S. withdrew from the Iran nuclear deal, and Iranian crude production fell to 1.95 million bpd by August 2020, significantly reducing its export capacity.

If the Trump administration reintroduces maximum pressure sanctions on Iran, the market impact could be substantial. In a worst-case scenario, where Iran loses its entire 1.7 million bpd of exports, and if Saudi Arabia or other major producers do not immediately compensate for the loss, global oil prices could theroretically see an upside of as much as USD 10 per barrel (Platts).

Bearish fundamentals still loom:
Despite these bullish factors, crude remains on track for a quarterly loss due to fundamental market weaknesses. Escalating global trade tensions threaten oil demand. OPEC+ is set to increase production from April, adding additional supply to a market already at risk of oversupply.

As a result, while geopolitical risks and bullish headlines provide short-term support to prices, SEB: forecasts that fundamental market conditions limit the potential for sustained price rallies.

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