Gas futures provide hope for coal demand bump

  • Market: Coal, Electricity, Natural gas
  • 09/24/20

Gas futures provide hope for coal demand bump

For US coal producers, three is the magic number.

A natural gas price above $3/mmBtu would make burning coal the more profitable choice at some power plants, increasing demand for coal, US producers said. And while near-term gas prices remain too low to motivate many generators to shift to coal-fired power, prices further out on the curve are showing signs of hope for coal producers.

The 12-month strip for Nymex gas delivery at the Henry Hub settled yesterday at $2.911/mmBtu, nearly 80¢ above the October contract. And the 2021 calendar year price settled at $2.971/mmBtu, just a few cents below the $3/mmBtu target for some coal-fired generators.

Higher gas prices could help pause the industry challenges that have slashed coal consumption and production to multi-decade lows. US coal companies produced an estimated 383.7mn short tons (348.1mn metric tonnes) of coal this year through 19 September, down by 26.2pc compared with the same period last year, US Energy Information Administration data show.

"We could use a gas [price] with a $3 on it," one producer said. "That would solve a lot of these problems."

An Argus analysis of historical natural gas prices and spark spreads in the PJM Interconnection, the nation's largest power grid, found a significant shift in coal profitability once the gas price eclipsed $3/mmBtu.

Since 2008, day-ahead spark spreads for 10,000 Btu/kWh coal units at the PJM West hub were at a premium to 8,000 Btu/kWh natural gas units just 4pc of the time when the Henry Hub day-ahead natural gas price was below $3/mmBtu. When the price was between $3-$3.499/mmBtu, coal units were more profitable 27pc of the time.

Coal competitiveness continued to advance as gas prices rose. Once the day-ahead Henry Hub price was $3.50-$3.999/mmBtu, coal spark spreads were higher than natural-gas margins 60pc of the time.

Coal in the Midcontinent Independent System Operator (MISO) has been less influenced by the $3/mmBtu threshold.

Since 2012, when Argus started assessing power prices at the Indiana hub in MISO, coal margins at the hub have been at a premium to natural gas 15pc of the time when natural gas prices were below $3/mmBtu. Coal sparks were higher than natural gas 19pc of the time when gas prices were between $3-$3.499/mmBtu. But prices between $3.50-$3.999/mmBtu resulted in coal margins beating natural gas just 20pc of the time.

For coal margins to maintain a premium over natural gas a majority of the time in MISO, gas prices would likely have to climb above $4/mmBtu. When the Henry Hub day-ahead price was between $4-$4.999/mmBtu, coal margins in MISO where higher than natural gas 67pc of the time.

Any coal demand recovery because of higher natural gas prices also is likely to be seasonal. Nymex natural gas futures prices yesterday showed just two periods of $3/mmBtu or higher during the next seven years: December 2020-March 2021 and December 2021-February 2022.

"Coal needs support from natural gas prices, support from exports, or both," another coal producer said. "We have not had either for a while. We are getting there with gas prices."

There already are signs that the higher gas futures for this winter have increased coal demand.

East Kentucky Power Cooperative is seeking up to 1.1mn st of spot coal with deliveries starting in October and lasting up to six months. It needs up to 125,000 st/month for its Spurlock units 1 and 2, and up to 60,000st/month for units 3 and 4.

Fuel margins relative to gas price at PJM West

Sharelinkedin-sharetwitter-sharefacebook-shareemail-share

Related news posts

Argus illuminates the markets by putting a lens on the areas that matter most to you. The market news and commentary we publish reveals vital insights that enable you to make stronger, well-informed decisions. Explore a selection of news stories related to this one.

News
02/26/24

Ice drops TTF front-month gas margin rate by 31pc

Ice drops TTF front-month gas margin rate by 31pc

London, 26 February (Argus) — The Intercontinental Exchange (Ice) has dropped its margin requirements for trading the Dutch TTF front-month contract by more than 31pc, effective from 26 February's gas day. The margin requirement fell to just under €5.96/MWh, from the €8.67/MWh that was applicable from 13 February and the lowest since July 2021 ( see graph ). Margins for contracts with later delivery periods also universally fell, by 12-29pc. This is the third consecutive drop in margin requirements in the past month. Requirements declined to €10.72/MWh, effective from 26 January , and then by €8.67/MWh from 13 February. This fall in the collateral needed to trade some of Europe's most liquid contracts tracks steady price falls at the TTF and other European markets. Argus assessed the TTF front-month contract at €23.30/MWh at the most recent close on 23 February, down from €27.94/MWh on 26 January. The front-month price has decreased steadily since October last year as storage fill levels have remained above average and Europe has experienced its second consecutive mild winter. The Ice TTF front-month margin peaked at €80.973/MWh on 9-23 March 2022 and has been on a downward trajectory since that time. But it has remained volatile, moving broadly in tandem with gas prices. By Brendan A'Hearn ICE TTF FM margin requirement vs TTF FM price €/MWh Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

Read More
News

Liberty Steel targets Australian hydrogen, CCS deals


02/26/24
News
02/26/24

Liberty Steel targets Australian hydrogen, CCS deals

Sydney, 26 February (Argus) — UK-owned producer Liberty Steel has signed separate agreements with the South Australia (SA) state government and domestic independent Santos to respectively explore the use of hydrogen and discuss carbon capture and storage (CCS) opportunities for its Whyalla steel plant in SA. Liberty could become the first domestic third-party customer for the Santos-operated 1.7mn t/yr Moomba CCS project in SA's onshore Cooper basin, which is on track to start injection in mid-2024. Santos has secured finance for its $150mn share of the $220mn project, it said on 26 February, following an initial deal signed with Liberty over the weekend. Santos and Liberty will now enter discussions for a potential term natural gas supply deal that could include abated gas from Moomba. This could help reducing residual emissions from the Whyalla steelworks during a transition period, before the plant fully moves to green hydrogen once that is available at scale, Liberty's owner GFG Alliance said on 25 February. Liberty's separate agreement with the SA government, also signed on 25 February, is for potential supplies from the government's planned 250MW green hydrogen facility near Whyalla in the Spencer Gulf region. The SA government last October chose a consortium comprising Canadian-owned infrastructure group Atco and German firm Linde's subsidiary BOC as preferred contractors for the plant, which is expected to come on line by the end of 2025 . "Today's agreement gives us and our stakeholders confidence to ramp up our efforts and commitment to the production of our 4bn t of high-quality magnetite, the establishment of a state-of-the-art green iron and green steel plant which will ultimately be powered by renewable energy and green hydrogen," GFG Alliance chairman Sanjeev Gupta said. Liberty plans to build an electric arc furnace (EAF) at Whyalla , which will replace the existing coke ovens and blast furnace and lift steel production capacity to more than 1.5mn t/yr from 1mn t/yr. The company has received a A$63.2mn ($41.4mn) grant from the Australian federal government to support the purchase and installation of the EAF. It also has A$50mn committed by the SA government for use towards the EAF, pending approval. GFG Alliance also plans to produce 7.5mn t/yr of iron pellet from locally-sourced magnetite from 2030 in a direct reduced iron plant, which would initially use a mix of natural gas and green hydrogen as the reducing agent before fully transitioning to the latter. Santos is also targeting to offer CCS services from Moomba to reduce emissions from other hard-to-abate industries such as aluminium and cement, as well as from fuels like LNG, it said. Santos owns 66.7pc of Moomba with the balance controlled by Australian independent Beach Energy, which anticipates 30pc of its equity greenhouse gas emissions will be offset by the storage . By Juan Weik Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

News

Panama urges fleet to avoid Red Sea, keep AIS on


02/23/24
News
02/23/24

Panama urges fleet to avoid Red Sea, keep AIS on

New York, 23 February (Argus) — The Panama Maritime Authority said today it "strongly recommends" all Panama-flagged vessels avoid transiting the Red Sea because of the increasing threat of Houthi attacks on commercial vessels, while warning vessels against turning off their automatic identification system (AIS). Some ship operators have chosen to disable their vessel's AIS to avoid detection by the Houthis with varying levels of success when transiting the region. That puts these vessels out of compliance with "international requirements related to position reporting," the authority said in a notice. More than 120 commercial and private vessels flagged by Panama were transiting the Suez Canal, the Red Sea, and the Gulf of Aden on Friday, according to vessel tracking data reliant on AIS. "All vessels hoisting the Panama flag before, during and after transiting the Red Sea, Gulf of Aden and Persian and their approaches must keep the AIS and long-range identification (LRIT) on except in those cases in which the captain considers that the safety of the vessel could be compromised or when a safety incident is imminent," the notice said. "The Panama Maritime Authority may sanction violations of such provisions in accordance with national legislation, if they do not formally report through LRIT and AIS to our administration at the appropriate time." The authority said the Bahamas-flagged vessel Galaxy Trader had operated without its AIS for 24 hours, traveling 250 nautical miles through the region, before being attacked by Houthis anyway. For vessels continuing to transit through the region, recommendations by the authority include traveling by night to avoid detection and installing searchlights to scan for the small vessels that likely act as spotters, the appearance of which have preceded Houthi missile attacks . But traveling by night comes with another risk. "At night, small and slow boats without a wake are difficult to detect on radar," the authority warned. "Don't stop if threatened and present a challenging target through proactive maneuvers." The Panamanian flag is flown by the plurality of flagged ships in operation at 17pc of the global fleet, represented by over 8,000 vessels, according to the state-owned Panama Ship Registry. By Ross Griffith Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

News

CEE countries ask EU to protect internal gas market


02/23/24
News
02/23/24

CEE countries ask EU to protect internal gas market

London, 23 February (Argus) — Five central and eastern European countries have issued a joint call for the EU to better protect the internal gas market, as storage levies in neighbouring countries could distort regional trade. The Czech industry and trade ministry is leading the initiative, in which Hungary, Austria, Poland and Slovakia are all taking part. The European gas market is "threatened by the introduction of new charges" for transporting gas across borders, which could "distort its functioning, create barriers to trade and hinder cross-border co-operation", the Czech ministry said. The five countries on 20 February asked the Belgian presidency of the EU to place the subject on the agenda of the 4 March energy ministers' meeting so that the issue can be discussed on an EU-wide basis. Europe has done a "tremendous job" in getting rid of its dependence on Russian gas supply, and it should "avoid taking steps that will undermine the work we have done, [and] damage our unity", Czech industry and trade minister Jozef Sikela said. The main target of criticism is the German storage levy, charged on all gas exiting the German grid and currently set at €1.86/MWh for the first half of this year. The levy creates barriers to the free trade of gas between EU countries, creating an "uneven playing field for national economies, increased energy costs for households and reduced cross-border cooperation", the minister said. The Italian regulator recently proposed a similar measure and "other countries" are also considering such levies, "suggesting a possible negative trend towards the extension of such charges across Europe", Sikela said. Levies "undermine efforts to diversify gas sources and favour gas supplies from Russia, which is contrary to the EU's geopolitical and energy security objectives", the minister said. These five countries call for "better protection" of the European gas market and the need for a "co-ordinated European solution". Energy Traders Deutschland expects German levy to rise further The storage levy has led to higher costs within Germany as well, the head of the gas taskforce of Energy Traders Deutschland Joachim Rahls emphasised on the sidelines of the E-World conference in Essen this week. Even within Germany, lower cross-border flows as a result of the levy are raising transport tariffs, as the same costs have to be distributed across less booked capacity, Rahls said, adding a higher storage levy would exacerbate the problems. Rahls "firmly expects" the storage levy to rise further in the next six-month period as current cross-border flows and revenues remain below the ones projected in the most recent setting of the levy. By Brendan A'Hearn and Till Stehr Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

News

'Huge demand' ahead of carbon exchange: Australia’s CER


02/23/24
News
02/23/24

'Huge demand' ahead of carbon exchange: Australia’s CER

Sydney, 23 February (Argus) — Demand for Australian carbon credits and renewable energy certificates is expected to continue increasing rapidly over the coming years, including voluntary markets, officials at the country's Clean Energy Regulator (CER) said today as they unveiled details about the planned Australian Carbon Exchange. Cancellations of Australian Carbon Credit Units (ACCUs) are estimated to have reached around 1mn in 2023 in the voluntary market, a new high and up from approximately 855,000 in 2022, while those for large-scale generation certificates (LGCs) rose to an estimated 4.9mn last year from 3.4mn the previous year, CER's general manager Jane Wardlaw said during a webinar organised by the Australia-based industry group Carbon Market Institute. While most of the demand for both products comes from compliance obligations under Australia's Renewable Energy Target and Emission Reduction Fund, including the revamped Safeguard Mechanism , companies can also make cancellations against voluntary certification programmes such as the federal government-backed Climate Active or under organisational emissions or energy targets. The CER is expecting "huge demand" in the voluntary market stemming from Australia's planned stricter mandatory emissions reporting , especially for LGCs, executive general manager Mark Williamson said on 23 February. Demand for ACCUs in the compliance market has been already increasing on the back of new safeguard obligations starting from the July 2023-June 2024 financial year, Wardlaw said. The regulator has been working closely with the Australian Securities Exchange (ASX) and technology solutions provider Trovio Group on its planned Australian Carbon Exchange . Trovio as a first step is developing a new registry for the Australian National Registry of Emissions Units, which is expected to come on line in the second half of 2024, with the exchange itself set to be launched between the end of 2024 and early 2025. "We think it's time to move to an exchange-based market where participants can trade anonymously," CER chair David Parker said, noting the buying side of the market has become much more diversified in recent years. "That's not intended to lock out the over-the-counter [OTC] arrangements," Parker said, adding the regulator hopes OTC trades will be cleared on the exchange. Companies that operate existing trading platforms will be able to connect their systems to the new registry. But the CER will require them to "release some data transparency" such as volumes and prices, Wardlaw said. New options The registry and exchange will incorporate other existing certificates like LGCs and small-scale technology certificates, as well as new ones such as the proposed guarantees of origin for hydrogen and renewable electricity . It will also include the new Safeguard Mechanism credit units (SMCs), which will be issued by the government to facilities that reduce their emissions below their baselines. The CER plans to publish information about which facilities are issued SMCs. While the exchange works with the CER on the new spot exchange, ASX's senior manager of issuer services Karen Webb said it is developing its own separate carbon futures contracts, which it is planning to launch in July 2024. The physically settled contracts will consist of ACCUs, LGCs and New Zealand units, for delivery up to five years ahead. By Juan Weik Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.