GAS_AND_POWER_KALEIDOSCOPE：THE_RECKONING-2013-02-06.pdf

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1、Commodities Research North American Natural Gas and Power 5 February 2013 PLEASE SEE ANALYST CERTIFICATIONS AND IMPORTANT DISCLOSURES STARTING AFTER PAGE 15 Gas and Power Kaleidoscope The Reckoning Environmental regulations due to come into effect in 2015 are expected to shutter a large number of co

2、al-fired power plants, and low power prices are speeding up this process in some cases. This dynamic should support gas demand. Yet the 9 GW of coal-fired generation that were retired in 2012 had an average utilization rate of just 17% during the first ten months of 2012 (note that most of the 9 GW

3、was retired at the end of the year), and new coal-fired plants offset some of the generation loss. Consequently, the effect on gas consumption was marginal. Announced coal plant retirements, net of new coal plant additions, are even smaller for the 2013-14 timeframe. The outlook is different for 201

4、5, however. Plants totalling 14 GW have already been announced to retire, and their utilization has been 23% in 2012. We expect another 10-15 GW to announce plans for retirement as we get closer to the date when environmental regulations take effect. These plants likely have greater utilization rate

5、s today. In total, we estimate that if fully replaced by natural gas, coal plant retirements could boost gas consumption by up to 1.0-1.5 Bcf/d in 2015 from 2014 levels. CHART OF THE WEEK Announced coal plant retirements and average capacity utilization 0 2,000 4,000 6,000 8,000 10,000 12,000 14,000

6、 16,000 20112012201320142015 MW nameplate capacity of coal plant retirments retired coal capacity adjusted for 2012 utilization retired coal capacity adjusted for 2011 utilization Source: Reuters, company reports, EIA, Barclays Research Biliana Pehlivanova +1 212 526 1170 Shiyang Wang +1 212 526 74

7、64 Barclays | Gas and Power Kaleidoscope 5 February 2013 2 Last year, many market participants believed that a large number of coal retirements occurred, and as a result, the gas market was well supported by a significant amount of permanent coal displacement. However, after a close examination of

8、 the announced coal plant retirements and their average capacity utilization rates, we have come to the conclusion that coal plant retirements have added only marginal gas demand so far. We believe a significant impact of coal plant retirements on gas demand is unlikely until 2015, when environmenta

9、l regulations are due to come into effect. Low natural gas prices have indeed idled a large amount of coal-fired generation. Coal displacement reached a peak of 9 Bcf/d in April 2012, by our estimates. This is equivalent to 50 GW, or 15% of the entire coal fleet in the country, running around the cl

10、ock at 80% utilization. Low forward natural gas prices have depressed forward power prices far out the curve, and forward base load coal plant margins for many eastern power markets traded negative during most of the year (Figure 1). Together with the anticipated tightening of environmental regulati

11、ons, this dynamic has played a big part in hastening the permanent shutdown of some coal plants in 2012. Last year saw 9 GW cease operation, compared with 3 GW retired in 2011. Not surprisingly, most retirements were concentrated in the eastern power markets (Figure 2). Yet data now show that this d

12、id not translate into a significant amount of permanent incremental natural gas power burn. First, the average utilization rates of the retired 9 GW were as low as 17% during the first ten months of 2012, as most of the retired capacity were plants that were already dormant or idled as a result of c

13、hronic displacement by natural gas-fired generation. Note that some portion of the coal plants retired in 2011 occurred at the end of the year in 2011, which means that 2011 coal retirement also affected 2012 on a y/y basis. Similarly, most of the 2012 retirements took place at the end of the year a

14、nd should affect 2013 on an average y/y basis. If fully replaced with base load natural gas-fired generation, the equivalent uptick in gas demand would be about 270 MMcf/d (assuming 60% capacity factor, 7.5 MMBtu/Mwh heat rate). Second, new coal plant builds more than offset the majority of the lost

15、 generation last year (Figure 3). Note that some new coal plants might not be the ones that could plug in the shortfall left by the retired plants, as certain new coal plants such as Cliffside are expected to run behind gas in the merit order. Other plants such as the IGCC (integrated gasification c

16、ombined cycle) projects are cleaner and more efficient than older coal plants. These “clean Retirements of coal-fired generation should boost natural gas demand, but not until 2015 Low natural gas prices have already idled a large amount of coal-fired generation FIGURE 1 Eastern forward around-the-c

17、lock dark spreads ($/Mwh) FIGURE 2 Announced coal plant retirements by region (MW) -20 -10 0 10 20 Dec-10Jun-11Dec-11Jun-12Dec-12 Cal 13 PJM West dark spread Cal 13 Mass Hub dark spread Cal 13 NY Zone A dark spread cal 14 PJM West dark spread cal 14 Mass Hub dark spread cal 14 NY Zone A dark spread

18、0 1,000 2,000 3,000 4,000 5,000 6,000 MISOPJMSERCSPPWECC NYISO NE-ISO ERCOT 2012201320142015 Source: Reuters, SNL Financial, EIA, Barclays Research Source: SNL Financials, company reports, Barclays Research Yet coal retirement in 2012 did not translate to a significant amount of permanent incrementa

19、l natural gas power burn Barclays | Gas and Power Kaleidoscope 5 February 2013 3 coal” projects are likely to plug at least some of the holes left behind by the retired capacity (Figure 4). Finally, the generation shortfall left by the retired coal plants is unlikely to be replaced entirely with nat

20、ural gas. In certain areas, gas generation cannot meet incremental load because of transmission constraints, and cleaner and more efficient coal plants with spare capacity are likely the plants that would pick up the slack. Thus, the incremental boost to natural gas consumption from coal plant retir

21、ements has been minimal in 2012. This year, the gist of the story is similar to 2012. Announced coal plant retirements amount to only 3 GW. These units ran at an average utilization rate of 30% in 2012, equivalent to about 150 MMcf/d of gas consumption. But nearly 2 GW of new coal-fired plants are e

22、xpected to be built in 2013, which would be more than sufficient to entirely offset the lost coal-fired generation from the retired facilities. Thus, 2013 is unlikely to be the year that gas demand receives a boost from permanent coal displacement. In 2014, coal plant retirements will add some perma

23、nent coal displacement, but only marginally. Around 3 GW are expected to retire in 2014 at this time. These plants ran at an average utilization rate of 50% in 2012, equivalent to almost 300 MMcf/d of incremental gas demand. However, a small amount of new build coal capacity (0.6 GW) is likely to of

24、fset some of that, leaving the effect on gas consumption smaller than 300 MMcf/d. The story changes in 2015, when the HAPs-MACT rules (Hazardous Air Pollution-Maximum Achievable Control Technology) that regulate the emissions of particulate matter and mercury are scheduled to come into effect on Jan

25、uary 1. Another regulation, widely regarded as less significant for the retirement of coal-fired power plants, the Cross State Air Pollution Rule (CSAPR) is expected to be rolled into the HAPs-MACT implementation schedule, despite being vacated by a panel of the U.S. Court of Appeals last summer (se

26、e Circuit Court Rules to Leave Cross State Air Pollution Rule (CSAPR) Vacated). So far, about 32 GW of coal-fired capacity retirements have been announced for 2011-15. Of that, 14 GW are scheduled to shut down in 2015 (chart of the week). With the average capacity utilization of the 14 GW at more th

27、an 20% in 2012, this would represent incremental gas demand of about 550 MMcf/d. We expect more shutdowns to be announced, however. Many plants are likely to delay decisions until right before the The story for 2013 and 2014 is likely to remain unchanged FIGURE 3 Planned new coal capacity and retire

28、ments adjusted for capacity utilization FIGURE 4 List of planned new coal plants 0 500 1,000 1,500 2,000 2,500 3,000 3,500 2012201320142015 MW retired coal capacity adjusted for 2012 utilization coal plant build out (under construction and planned) Plant name Capacity (MW) year Prairie State 1600 20

29、12 Cliffside 825 2012 John W Turk 600 2013 Edwardsport IGCC 618 2013 Sandy Creek 925 2013 Plant Ratcliffe IGCC (David) 582 2014 Source: Reuters, SNL Financial, EIA, Barclays Research Source: Reuters, SNL Financial, EIA, Barclays Research But 2015 should bring a significant amount of permanent coal d

30、isplacement Barclays | Gas and Power Kaleidoscope 5 February 2013 4 environmental regulations come into effect. The decision-making on whether to shutter a coal plant due to upcoming environmental regulations depend on many factors. As we have highlighted previously (Natural Gas Weekly Kaleidoscope:

31、 Coal retirements: a gas demand spike ahead, March 8, 2011), plant operators would need to take many complications and considerations into account when deciding whether to upgrade or retire a coal unit. For instance, operators need to consider not only the profit margin of the plant, but also the sy

32、stem integrity and stability of the regional grids. Some plants facing costly equipment upgrades might not be able to retire for reliability reasons. We believe another 10-15 GW of coal-fired capacity retirements are likely to be announced for 2015, bringing our estimate to a total of 24-29 GW for t

33、hat year and to 42-47 for 2011-15. Note that the extra 10-15 GW that have yet to be announced are likely to have higher utilization rates than the plants that already have announced retirement dates. Assuming that the retired plants have 30% utilization rates in 2014 (equivalent to 2012 levels), thi

34、s would translate into 1.0-1.5 Bcf/d of y/y incremental gas demand, if fully replaced by natural gas- fired generation. Location matters when estimating the amount of permanent coal-to-gas displacement that could take place. The regions of the country vary considerably in power demand, as well as in

35、 the amount of gas and coal plant capacity. Most of the announced coal retirements in 2015 are concentrated in MISO, PJM, and SERC (Figure 2). Thus, the power markets of SERC, PJM, and MISO represent the greatest potential for gas to displace coal permanently. Figure 5 shows the installed base of co

36、al- and gas-fired units in these three power markets. While regional constraints exist and some coal-fired power plants may not retire because of grid reliability concerns, the three power markets with largest coal retirements each have a large base of gas-fired generation. We believe gas is likely

37、to be called on to replace the majority of power generation loss from coal plant retirements. FIGURE 5 Existing gas and coal generation capacity by region (MW) 0 20,000 40,000 60,000 80,000 100,000 120,000 140,000 SERCPJMMISO coalgas Source: Reuters, SNL Financial, EIA, Barclays Research Barclays |

38、Gas and Power Kaleidoscope 5 February 2013 5 COMMENTARY ON WEEKLY DATA Prices Shifting weather patterns have been the main driver of swinging natural gas prices over the past two weeks. Cash prices have dropped 37 cents since January 22 and have averaged $3.32 from the beginning of 2013. The forward

39、 curve came under pressure as well, as freezing temperatures moderated, with the balance of 2013 closing at $3.57 per MMBtu and calendar 2014 at $4.03 on Monday, February 4. We believe that it is a little too late for cold weather for the rest of the winter to put a significant dent in storage unles

40、s natural gas production declines outside of temporary freeze-offs materialize earlier than expected. Furthermore, according to the nuclear plant maintenance schedule, nuclear generation should rise on a y/y basis by March, giving natural gas less share of the overall power load. We see limited upsi

41、de potential for prices from current levels in the near term. The spread between calendar 2014 and calendar 2015 has widened substantially recently, and we believe it has the potential to widen further from current levels, given our expectations for underlying fundamentals in 2014-15. Storage levels

42、 The storage deficit to last year widened, despite a bearish weekly storage withdrawal last week. Lower-48 stocks fell by 194 Bcf, 10 Bcf below the markets expectations. The East withdrew 129 Bcf, while the West shed 18 Bcf. The Producing Region, the area that pipeline scrapes have the least visibil

43、ity in, came off by 47 Bcf. Although the withdrawal was smaller than expected, it indicated a tighter market compared with the same time last year due to lower production and colder weather, offset partially by higher Canadian imports and lower natural gas power burn. Supply and demand trends The pa

44、ce of production growth continued to slow in November 2012, in line with our expectations. Lower-48 gross withdrawals were up 1.4 Bcf/d y/y in November, compared with 1.6 Bcf/d y/y growth in October 2012. Production has risen by an average of 3.6 Bcf/d y/y in the first eleven months of the year. On

45、a month-to-month basis, gross withdrawals of natural gas from the Lower-48 increased 410 MMcf/d in November 2012, significantly less than pipeline scrapes were indicating. This is the second month in a row in which pipeline scrapes have overestimated the growth of production. Net Canadian imports dr

46、opped drastically in November of last year, by more than 1 Bcf/d m/m and 760 MMcf/d y/y. Mexican exports came off by 300 MMcf/d m/m, but remained up y/y by 346 MMcf/d. Demand fundamentals continued to tighten in November. Other than higher heating demand because November 2012 was much colder than No

47、vember 2011, power burn grew more than 1 Bcf/d y/y as a result of a deeper-than-usual nuclear maintenance season. Industrial demand for the first 11 months of last year grew by more than 500 MMcf/d y/y, with November up by almost 830 MMcf/d y/y. More than 4.5mn tons of gas-intensive brown field manu

48、facturing capacity came online in 2012 as manufacturers took advantage of decade-low natural gas prices. Prices continue to trail somewhat below $3.50 A weaker-than-expected storage withdrawal has nevertheless widened the storage deficit November production growth in 2012 came out less than pipeline

49、 scrapes were indicating Barclays | Gas and Power Kaleidoscope 5 February 2013 6 NATURAL GAS MARKET REFLECTIONS: PRICES FIGURE 6 Henry Hub NYMEX prompt and cash prices FIGURE 7 NYMEX natural gas forward price curve 2.80 3.30 3.80 Dec-12Jan-13Feb-13 $/MMBtu PromptCash 3.10 3.30 3.50 3.70 3.90 4.10 4.30 4.50 4.70 Mar-13Jul-13Nov-13Mar-14Jul-14Nov-14 $/MMBtu 2/4/20131/29/2012 FIGURE 8 Henry Hub UK NBP prompt differential FIGURE 9 Transco Zone-6 New York basis, $/MMBtu 0 2 4 6 8 10 12 May-12Jul