WEEKLYEUROPEANENERGY：MATTERS：EUROPEANCARBON：WHERETONEXT0115

1、eib commodities research 14 january 2013 weekly european energy matters european carbon: where to next? as progress on the back-ending proposals slows, the big question in the carbon market is: where do eua prices go next? the question takes on even more relevance as eua prices dipped below 6/t at t

2、he end of last week. however, the issue remains that there is much uncertainty regarding the back-ending proposals since it became clear that germany was struggling to arrive at a unified position on the proposals with the ministry of economics opposing while the ministry of environment supports. gi

3、ven this, if germany was to abstain or oppose, along with poland opposing, it would only require four more medium-sized countries to oppose to create a blocking minority. this does raise the uncertainty for the market, making it less clear that these proposals will pass. if the proposals on back-end

4、ing do not pass, then the issue becomes only how much unsatisfied hedging by the utilities is out there for the next couple of years that will provide demand for all of the volumes being sold by auction. this is because there is likely to be no opportunistic buying of carbon because prices could be

5、higher next year. in terms of the amount of possible hedging activity, by the end of 2012, open interest across the three front-year contracts totalled 786 mt, up 252 mt y/y, or a 47% increase. mind you, we did expect an increase as 2012 still saw free allocation from heat and power that is absent i

6、n 2013. however, we believe more hedging occurred as 2012 was a fairly good year for german dark spreads, which held out around an average of 12/t, and while this might be low by historic standards, the promise of some 7.5 gw of new coal-fired plant coming in the next two years will put some pressur

7、e on those spreads. as such, we would expect demand to be more modest, and with comparable y+1/y+2 open interest being almost 90 mt higher, this suggests there will be less hedging support than last year particularly if spreads along the curve fall further. against that demand, supply will be robust

8、 with most weeks now seeing 15-19 mt being released into the market, which does not include additional volumes that could come in from a few of the other member states and the eib. unless the utilities mop up all of that supply, the only direction for prices will be down. figure 1 eua auction volume

9、s (mt): one certainty 90 80 70 60 50 40 30 20 10 0 trevor sikorski +44 (0)20 3134 0160 miswin mahesh +44 (0)20 7773 4291 we would like to thank afonso campos for his help on this publication. apr-12 jun-12 aug-12 oct-12 dec-12 feb-13 apr-13jun-13 aug-13 oct-13 dec-13 phase 3 volumesgermany p2other s

10、overeign sales p2 source: eex, barclays research please see analyst certifications and important disclosures starting after page 12 oil comment statistics 2 barclays | weekly european energy matters overview with a degree of sadness we would like our readers to note that this is the last version of

11、the weekly european energy matters. fear not, from next week all of the same comment and analysis will be published as part of the commodities weekly. if the energy sections are your only interest, you can just subscribe to the energy chapter, which will have all of this content plus more. we would

12、like to thank you all for your readership and hope you look forward to receiving this content in its new format. figure 2 market data driversdiscussion crude oil markets have retraced gains registered at the start of the year, with front-month brent trading close to 2012s average of $111.6/bbl. whil

13、e the fiscal cliff agreement has taken some macroeconomic risk away, there remains a lack of directional momentum for prices to move much further away from $111/bbl, at least for now. on fundamentals, global demand continues to hold steady as seen in the healthy data from asia over the past few week

14、s, with south korean oil demand, for instance, up 4% y/y on a cold q4. on the supply side, third-party estimations of opec output show a sizeable reduction in output in december, which is in line with the recent opec meeting that suggested production was closer to the target rather than above it. no

15、n-opec shortfalls continue to build, with pipeline outages in colombia and yemen. although the latter has recovered, it reinforces geopolitical sensitivities around the region. weather-related disruptions are also evident, with chinese oil output getting affected as a result of icy conditions in the

16、 bohai bay, while several oil producers in western australia curtailed offshore production to the tune of 350 thousand b/d, as a precaution to the approach of the first cyclone of the season. overall, we expect the 2013 trend in oil market balances at the aggregate level to be similar to 2012, with

17、global oil demand higher, non-opec supply (ex-north america) continuing to disappoint, and the call on opec crude remaining elevated. while we expect geopolitical developments to become a major driver for the oil market in 2013, these are likely to appear later in the year. price summarycarbonuk nat

18、ural gas (nbp)coal (api-2)german poweroil brent crude (eua)(clean dark spreads) contractdec 12m+1y+1m+1y+1d+1y+1m+1y+1 price level5.92/t81.5cts/th 81.2cts/th65.7/t81.6/t15.3/mwh 9.0/mwh82.9/bbl75.0/bbl w/w % change-6.6%-0.5%-1.0%-4.1%-2.5%1568%2.7%-2.7%-2.2% power: fuel switching (implied co2 price)

19、 efficiency combination 54% gas/30% coal 50% gas/34% coal 48% gas/36% coal 54% - oil indexed/30% coal winter 2012/13 (/t) 29.0 53.6 87.0 47.9 summer 2013 (/t) 20.8 30.8 71.9 47.9 note: uses nbp gas and ara prices for coal. % refers to plant efficiency, first gas and then coal. numbers refer to requi

20、red carbon price to cause coal and gas-fired plant to break even given prevailing fuel prices. macroeconomicin november 2012, seasonally adjusted industrial production fell by 0.3% m/m in both the euro area (ea17) and the eu27. in y/y terms, industrial production dropped by 3.7% in the euro area and

21、 by 3.3% in the eu27. source: eurostat note: w/w change refers to -denominated commodity prices. source: barclays research figure 3 cross-market correlations (90 days) oilgascoalcarbonpower ukpower gy oil gas coal carbon power uk power gy 100% -38% 2% 32% -33% 4% 7% 100% 25% -29% 85% 41% 32% 40% 100

22、% -36% 21% 34% 77% -14% -6% 100% -17% -7% 47% 37% 16% 59% 100% 53% 88% -2% 31% 76% 55% 100% note: correlations below the 100% diagonal line are the correlations of the most prompt contracts in the market (spot correlation). the correlation figures above the 100% diagonal cells are the correlations f

23、or the y+1 (2012) contracts. correlations of prices rather than returns over 90 trading days. source: ecowin, barclays research 14 january 2013 cer/eru cca 3 barclays | weekly european energy matters european carbon ji ban too late to affect priceslast week saw a release of a new draft amendment to

24、the registry regulation that focusses on the future eligibility of erus in the eu ets. earlier drafts of the amendment were notable for proposing that erus from certain countries might no longer be held in the eu registry from as early as 1 january 2013. while that date always seemed too early to ac

25、tually be implemented, the new proposed amendment: only refers to erus issued after 31 december 2012 in respect of emission reductions taking place until 31 december 2012. hence, it will not affect the 630 mt of erus that were issued before 1 january 2013. relates to projects in third countries that

26、: do not have legally binding quantified emission targets from 2013 to 2020 set out within an amendment to the kyoto protocol this effectively rules out russian erus; or have not deposited an instrument of ratification relating to such an amendment to the kyoto protocol could affect any other host c

27、ountrys erus, with particular relevance to ukraine. this appears to suggest that if a country has not started ratification proceedings for kp2 in the next few months, there could be a period in which affected erus from that country would stop being held by the registry until that event occurred; wil

28、l allow such erus to be held in ets accounts in the union registry where they relate to emission reductions: verified in accordance with ji track 2 procedure (5% of projects by volume); or, if they have been certified as having been issued in respect of emission reductions taking place until 31 dece

29、mber 2012 by an unfccc accredited verifier. we understand that a large number of track 1 erus are not verified by one of the 11 verification bodies approved by the unfccc (bloomberg). the climate change committee could agree on this amendment in its meeting on 23 january, and it could start to be im

30、plemented as early as may. while the amendment would certainly make trading erus more complicated in the future, the sheer volume of issued erus already issued by the end of 2012 renders that ban of almost no importance for the market balance. the eru issuance has come and will be eligible for use o

31、ver the coming two years, and there is now enough offset issuance (cers+erus) to fill the entire phase 2 and phase 3 offset allowance. in market trading, dec 13 euas fell 6.7% w/w to close at 5.92/t, while dec 13 cers closed largely unchanged in absolute terms at 0.43/t. the fall in euas came as a r

32、esult of the start of the high level of weekly auctions that are scheduled to persist for the entire year, with over 14 mt sold last week. this week sees more than 18 mt being offered for sale, and with those weekly volumes potentially increasing, the pressure on prices should continue until there i

33、s greater clarity on the political support for the back-ending proposals. figure 4 european carbon statistics driversdetails weekly issuance cer = 9.2 mt; total issuance cer = 1176 mt number of registered cdm projects = 5738 (115 registered) statisticsrequests for issuance = 24.3 mt total issuance e

34、ru = 658 mt (up 30 mt) source: unfccc ji projects registered: track 1=523 track 2=50 (7 new projects registered, 55 in progress) california carbon allowances (ccas) closed down 10% w/w at $14.40/t for the v13, dec 13 contract. source: barclays research 14 january 2013 weather 4 barclays | weekly eur

35、opean energy matters european natural gas norway having peaked? gas prices moderately up on the norwegian petroleum directorate (npd) released its statistics for 2012, which showed that gas production from the country was up at 113 bcm in 2012 (up 10% y/y). while this is in line with our estimates (

36、see natural gas quarterly, 27 november 2012), the bigger surprise was in the npds outlook for 2013 production to fall to 106.5 bcm in 2013 and not return to 2012 levels by 2017 (111 bcm/y). the fall in production was put down to “market uncertainty” (possibly falling demand) rather than resource con

37、straints and, in our opinion, seems to be a conservative estimate of market requirements for norwegian gas. the main drivers on the export side will be driven by: uk demand, which we expect to increase y/y due to the closure of some lcpd-opted out coal plant; continental demand that could well be do

38、wn due to new coal plant coming online in germany and the netherlands; and russian gas becoming more competitive given the adjustments to oil-indexed formulas agreed in 2012. while this might point to lower demand for norwegian gas, we still think gas priced on hub will remain more attractive than t

39、he new lower oil-indexed prices. as such, we expect the call on norwegian gas to be similar to 2012 levels. however, the npd numbers do underline the fact that there is little upside to 2012 production numbers in the coming years. nbp m+1 prices closed up last week at 67.4 p/therm, up 2% w/w. the up

40、ward pressure on prices at the front end was largely driven by the cold winter weather that has blown back into the uk. despite snow falling and the outlook for the cold spell to continue all week, m+1 prices have settled into the 67-68 p/therm range that has largely characterised the current winter

41、. the lack of any further movement upwards in price does point to the nbp remaining well-supplied with gas despite further y/y reductions in lng. the system has coped with good imports from norway and the continent and fairly healthy withdrawals from storage. storage levels at 3.9 bcm are good for t

42、he time of year, and even at last weeks levels of withdrawals, it would take a good 10 weeks before those levels would appear dangerously low. while the even colder weather being experienced this week will likely lead to a higher withdrawal rate (there have been weekly draws in excess of 500 mcm), u

43、nless this cold weather becomes entrenched, it is hard to see prices for m+1 gas having significant upside. further ahead on the curve, y+1 prices showed almost no movement last week, staying at 67 p/therm, as direction was lacking from key drivers. figure 5 supply and demand on the uk nbp average m

44、cm/dlast weekprevious weeklast year supply uk production norwegian imports dutch imports (bbl) belgium imports (iuk) lng 152.6 80.0 26.2 15.2 13.0 171.1 92.0 27.8 0.0 22.3 159.6 76.0 28.7 0.0 37.8 demand ldz power industrial belgian exports (iuk) storage levels (mcm) storage injections (mcm) 206.9 3

45、9.8 7.7 1.7 3911 -204 184.9 32.8 7.4 5.1 4115 83 188.9 44.2 6.3 6.7 4079 -88 source: national grid, bbl, interconnector, gse, barclays research 14 january 2013 5 barclays | weekly european energy matters steam coal and freight coal prices stayed seeing some support on weather global thermal coal pri

46、ces were soft throughout the week and have edged down on most days since the beginning of the year, although at the end of the week those prices seemed to be stabilising. given a weak physical market in europe, cif ara has fallen to $87.7/t, down 2% w/w, having previously touched levels last seen in

47、 early november. the front fob richards bay contract, the south african benchmark, saw prices fall 1.6% w/w, which meant that the prompt cif ara fob rb spreads remained negative, pointing to somewhat stronger demand from asia due to the cold weather in that region. coal presently is a weather story,

48、 with a variety of elements affecting supply and demand. on the demand side, the cold weather now blowing through europe should help erode some of the stocks that had built up during a mild december. with cold weather persisting in asia, this should also support prices for the asian benchmarks. on t

49、he supply side: the recent period of extremely high temperatures in australia have put strain on transport arteries as limits have been imposed on the railway speeds to keep machines from overheating. furthermore, the movement into the cyclone season in australia could see disruptions at ports. the

50、freezing weather in china, which could lead to some icing in the seas around bohai, might restrict the movement of domestic coal, increasing the demand for imports. there have been draws on stocks at russias baltic ports, while stocks at the richards bay coal terminal in december were at almost two-

51、year lows, standing at 2.74 mt, down more than 16% y/y. with winter continuing to dictate prices for now, the colder weather should likely bring support even to the atlantic benchmarks, although barring a sustained supply disruption, the market does appear well supplied and upside seems limited at a

52、round $90/t. however, once the effects of the winter season start to fade, the amount of expected incremental supply capacity that is being added does seem as if it will moderate any price moves to much above $90/t. on a separate note, according to data from the london energy brokers association (le

53、ba), the liquidity of financial coal contracts reached a record in 2012, with the number of traded contracts hitting 2.3 billion tonnes in 2012, up almost one-fifth on the previous year. although api2 and api4 volumes were up by roughly the same amount y/y (about 15%), the api-2 dwarfed api4 almost

54、five-fold in absolute volumes traded. 14 january 2013 6 barclays | weekly european energy matters european power power demand disappointing uk power up on colder temperatures as have german prices with initial estimates of complete year data beginning to emerge, it is clear that 2012 was another poo

55、r year for power demand with few european markets reporting any increases. the bdew, germanys industry body, announced that power consumption in germany in 2012 fell by 1.4% y/y, although power generation rose by 1.3% y/y, allowing a net increase in power exports (from 6 twh to 23 twh). in italy, po

56、wer demand was estimated to have fallen 2.8% y/y by system operator terna. with other countries expected to release provisional data in the coming weeks, we expect similar results across the board. while the eu-wide recession of 2012 would have been a major factor in pushing through a reduction in p

57、ower demand, we expect underlying energy efficiency measures to have also been at play. with demand down, the increase in renewable power generation was reported in both countries and has led to reduced calls on thermal capacity. while power demand was down, power volumes traded otc were down 47% ac

58、cording to leba. the data cover brokered trade and do not include, say, volumes on some of the main exchanges (eg, eex or nordpool). market summary uk power: d+1 power prices in the uk have had a mixed week. the first half of the week saw prices climb rather sharply to 63.2/mwh, while prices retreat

59、ed in the latter half, meaning that while the contract was up 7.5% w/w, it was only up about 2% since the beginning of the week. if the cold being felt throughout the uk is maintained, there is scope for the contract to move even higher as this week unfolds. the day-ahead action bucked the trend exhibited throughout the rest of the curve, which saw prices down for the majority of the further dated contracts. the m+1 contract closed down slightly (0.2%) on the week, settling at 61.7/mwh, while y+1 prices closed at 64.6/mwh (down 1.4% w/w). unlike the previous two weeks, prompt spark spreads h