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  • Commodity market report

    Change isn't easy when you're a fossil: Europe power and renewables long-term outlook H1 2017

    • 14 August 2017

    Weak demand and growth in renewable supply has placed substantial pressure on the role and economics of fossil-fuel generators.

    $5,400.00

    Summary

    Energy transition remains on course in the power sector The European Union s commitment to its climate energy objectives continues to drive far reaching changes in energy markets nowhere is the influence of this transition seen as strongly as it is in the power sector. But the pace at which change is occurring in power has become a substantial test of both commercial market arrangements and the physical capabilities of infrastructure. Weak electricity demand and growth in renewable power supply has placed substantial pressure on the role and economics of conventional generators particularly those burning fossil fuels such as gas and coal. The rapidly changing characteristics of supply and significant pressure on the traditional business model of utilities have combined with the conflicting demands of national regional and corporate priorities for many the European power sector has become a very challenging place in which to operate. Low carbon growth sustainably delivered? As wind and solar PV technology costs have fallen and the burden of environmental levies on consumers has become a subject of increasing public (and political) concern the availability of financial support for renewables has altered substantially. Developments in renewable subsidy arrangements including changes in Germany Italy and the UK have demonstrated a more determined commitment to reducing the costs of low carbon power and increasing the integration of subsidised technologies into wholesale markets. EU wide state aid rules require all new or overhauled incentives to be market orientated and cost effective signalling the end of over generous and inflexible payments. New incentive arrangements must feature competitive bidding processes exposure to wholesale markets and market balancing obligations. Changes to subsidies and the costs of maturing renewable technologies offshore wind has been responsible for the most recent high profile cost reductions will shape the development of low carbon power supply wholesale price formation and the role of conventional generators in Europe. Over time many of the distinctions between the market treatment of renewables and other sources such as priority grid access and dispatch will be removed. Wind solar and thermal renewables will continue expanding their role in European electricity supply although rates of growth will be lower than those seen in previous years. Renewable power supply by source and market share (EU 28) Decarbonisation is difficult for fossil fuels Investment in conventional flexible supply has become increasingly difficult (and rare) in much of Europe while the retirement of unprofitable plants is weakening system margins. As Europe s power supply mix develops and the role of gas and coal generators continues to change the commercial frameworks of markets is transforming. Wholesale power prices are offering less value to generators seeking to cover the variable costs of traditional thermal plants with even the most efficient facilities finding it more difficult to achieve an acceptable return on invested capital. These conditions have contributed to an upsurge in the mothballing and retirement of fossil fuel fired plants shifting corporate strategies and the cancellation of many (almost all) plans for new coal and gas fired developments. With regional controls on atmospheric pollutants and national policy initiatives such as Germany s energy transition and moves by the French government to restrict output from its nuclear fleet also influencing the generation mix the maintenance of adequate flexible supply capability is a major concern for governments and regulators. As large volumes of production from renewables make the management of power systems more challenging moves to strengthen existing or introduce new arrangements to ensure the adequate reward of dispatchable generators have become widespread. Capacity reward arrangements will increasingly allow operators to realise the value of their flexible generation (and also demand and/or storage based services) resulting in a greater emphasis on the flexibility and capability of assets ahead of their overall rates of utilisation. A new focus on capacity before output (megawatts as a service) is attracting investors and represents an alternative revenue stream for many existing coal and gas fired generators. European power supply by source Note: Hydro generation from conventional sources only excludes pumped storage production Coal s bad run continues During 2016 a number of market specific factors weighed on coal's contribution to supply particularly as seaborne thermal coal prices strengthened in the second half of the year. UK coal generators were out competed by gas fired resulting in unprecedented periods of zero coal fired supply on the system. In Spain low demand and high hydro output (a position reversed in 2017) pushed coal out of the market while in France competition from gas led to a drop in coal fired power supply to half of 2015 levels. Only German coal generators saw some upside resulting from lower production from nuclear but offset by strong renewable output and growth in gas based CHP generation. Overall coal fired generation in the EU fell by nearly 10% last year. Older coal fired units already constrained by measures such as the Industrial Emissions Directive (IED) and the growing competitiveness of gas will continue to face pressure from the efforts of national governments to reduce carbon emissions. The UK intends phase out all coal fired power by 2025 and Germany has introduced a lignite reserve to remove its most polluting plants from the wholesale market. The combined market share of hard coal and lignite fired generation will fall from its current 22% to 17% in 2020 and just 12% by 2035. Across the EU we forecast coal generation to fall to 353 TWh by 2035 down from 739 TWh in 2016. Gas makes a comeback but the story changes As coal declines gas' contribution to supply in the EU will rise from 606 TWh in 2016 to a peak of 760 TWh in 2024 accounting for 23% of generation at that time. But then the story changes and gas fired supply will begin to fall as competition from renewables intensifies and power demand growth continues to be weak. By 2035 gas fired production will have fallen back by some 10% from its mid 2020s level. Declining production from nuclear and coal will lend some support to the use of gas towards the end of the outlook. The ability of nuclear to remain one of Europe s foremost sources of power looks increasingly uncertain. While the UK s decision to go ahead with the 3.6 GW Hinkley Point C project has provided a much needed but also widely criticised boost to Europe's nuclear industry policies to phase out or limit the contribution of the source impact on a far greater volume of potential production. We expect power supply from nuclear to fall by over 20% between 2016 and 2035.

    What's included

    • Document

      Europe Power H1 17.xls

      XLS 2.33 MB

    • Document

      Change isn't easy when you're a fossil: Europe power and renewables long-term outlook H1 2017

      PDF 495.92 KB

    • Document

      Change isn't easy when you're a fossil: Europe power and renewables long-term outlook H1 2017

      ZIP 1.05 MB

    • Document

      Executive summary

      PDF 116.27 KB

    • Document

      Demand

      PDF 118.88 KB

    • Document

      Renewables

      PDF 155.89 KB

    • Document

      Supply

      PDF 92.02 KB

    • Document

      Supply-demand balances

      PDF 103.27 KB

    • Document

      Prices

      PDF 147.54 KB

    • Document

      Risks and uncertainties

      PDF 86.20 KB

  • Commodity market report

    Global thermal coal long-term outlook H1 2017: Capacity-oriented policy steps drive seaborne markets

    • 08 August 2017

    As coal demand from China declines, India's demand grows to overtake China as the largest thermal coal importing country in the world.

    $6,750.00

    Summary

    The thermal coal trade has undergone a sea change over the past year due to reforms in China's coal sector and frequent supply outages in key exporting countries. Import demand variability has increased and the market has often looked tighter than it actually is on annual basis. Newcastle thermal benchmark has averaged US$82/t since July 2016. As a result the entire seaborne thermal curve is making a positive margin after several years of losses and margin compression. While reforms in China are not over yet there are limited signs of improved profitability resulting in net new capacity additions. In the seaborne market as well miners continue to conserve cash rather than bring on new supply as demand outlook remains uncertain. In fact export supply in some regions notably Australia is consolidating as traditional investors such as Rio Tinto and Mitsubishi prepare to exit the thermal coal business. As emphasis on alternatives to coal use grows across the globe we project a long lull in the thermal coal market. Despite increasing energy needs from developing economies pathways to lower thermal coal use are growing with better technologies carbon reduction policies and low cost financing for renewable energies. New coal plants are more efficient and require less coal per MWh. Renewable generation is becoming less costly. There have also been advancements in storage systems energy efficient products and the smart grid. We have not greatly revised our forecast for seaborne thermal coal demand in this update from our H2 2016 outlook. Near term demand is slightly higher due to stronger Chinese imports. However we expect a slight drop in total imports longer term due to less growth in low rank coals. Overall seaborne thermal coal demand will average 935 Mt until 2022 and then increase to 1 Bt by 2027. By 2035 it will reach 1.065 Bt down 12 Mt from the last update. Southeast Asia and India will bring on new import demand from additional coal fired capacity to serve rising power needs. Southeast Asia's imports will grow from 88 Mt currently to 227 Mt by 2035 while India's will grow from 148 Mt to 240 Mt in the same period. China on the other hand remains a contestable market. Imports will increasingly become a function of domestic supply displacement in coastal provinces. We believe that recovery in Chinese domestic coal supply and improvement in cost competitiveness are more crucial than ever before to limit imports. Chinese coastal demand will fall from 1.1 Bt now to 945 Mt in 2020 and 662 Mt by 2035. Our base case for imports will also decline from 170 Mt this year to 125 Mt in 2020 and stabilise at 100 Mtpa thereafter. That means domestic coal supply will need to reform and improve its cost position significantly to maintain market share. Demand in EMEARC and the Americas will continue to fall and reach 139 Mt and 38 Mt respectively by 2035 from a total of 215 Mt at present. The reduction is structural due to declining power demand and the rise of renewables and gas fired electricity. However despite these risks and disruption to coal based power generation demand for low ash low sulphur and high energy thermal coal will remain strong and drive price formation. We forecast Newcastle and ARA benchmark prices to be US$65 80/t over the next 12 months. Although building new coal projects will be more difficult and expensive there will be a supply gap after 2022 which if not closed will result in price growth. We expect new basins in Australia Galilee and Surat will eventually be developed to fill this gap and prices will rise to incentive levels of US$75 80/t (real terms) after 2025. For data associated with this long term outlook please refer to the Global Coal Market tool.The PDF download with this report contains further information about our forecast.

    What's included

    • Document

      WM CMS Thermal H1 2017 Slidepack July 2017.pdf

      PDF 3.13 MB

    • Document

      cms thermal coal prices data june.xls

      XLS 3.39 MB

    • Document

      Global thermal coal long-term outlook H1 2017: Capacity-oriented policy steps drive seaborne markets

      ZIP 4.45 MB

    • Document

      Global thermal coal long-term outlook H1 2017: Capacity-oriented policy steps drive seaborne markets

      PDF 539.94 KB

    • Document

      Executive summary

      PDF 81.89 KB

    • Document

      Prices

      PDF 126.76 KB

    • Document

      Demand

      PDF 130.12 KB

    • Document

      Supply

      PDF 211.19 KB

    • Document

      Infrastructure

      PDF 133.46 KB

    • Document

      Risks and uncertainties

      PDF 88.78 KB

  • Country report

    Permian region overview

    • 19 July 2017

    Permian region overview

    $6,750.00

    Summary

    The Permian region overview located in the Downloads section offers key trends and a detailed description of reserves production economics infrastructure and fiscal terms for the Permian region and its sub basins. The downloads include the Permian region overview PDF and accompanying Excel worksheet with figures and data. In addition to the Permian region overview documents this page also includes links to other Permian related content including Key Play and Type Curve reports company asset reports Insights and Permian Pulses. Permian Basin sub basins Summary Wood Mackenzie's Permian Upstream Service covers the following four Permian sub basins in this this report: Central Basin Platform Midland Delaware and Val Verde. Historically operators in the Permian have drilled vertical wells across the region but over the past decade operators have been drilling horizontal wells in the Midland and Delaware basins targeting the multiple shale benches. The Permian has some of the lowest breakevens in the Lower 48 driven by the Midland and Delaware basins which have several sub plays that breakeven below $50/bbl. M&A activity in the Permian has taken off during the recent downturn due to operators driving down costs and breakevens by drilling multi well pads with longer lateral lengths and enhanced completions. In 2016 over 40% of the Lower 48 M&A spend was in the Permian.

    What's included

    • Document

      Permian region overview.pdf

      PDF 3.66 MB

    • Document

      permian region overview.xlsx

      XLSX 756.89 KB

  • Insight

    Smooth sailing or rough seas? Updated analysis of the IMO bunker sulphur changes

    • 23 August 2017

    The forthcoming change in IMO regulations on the quality of marine bunkers, impacts the mix of fuels consumed by the shipping sector in 2020

    $2,700.00

    Summary

    What's included

    • Document

      Smooth sailing or rough seas - Updated analysis of the IMO bunker sulphur changes.pdf (1)

      PDF 1.84 MB

    • Document

      Smooth sailing or rough seas - data and charts.xls (1)

      XLS 431.00 KB

    • Document

      Smooth sailing or rough seas? Updated analysis of the IMO bunker sulphur changes

      ZIP 1.77 MB