Energy commodities continued to be hit by the global economic downturn, registering double digit losses during the last quarter of 2008. Oil prices retreated a whopping 55% to near 40 $/bbl at the end of the year, in essence on the back of a steep decline in demand as most OECD and non-OECD economies went into recession. European coal prices also plummeted dramatically, suffering from muted demand in the Atlantic basin and a fast slowdown of the Asian emerging economies. With the exception of late October, when a cold snap hit Europe, spot gas prices were generally depressed throughout Q4-08, on a combination of ample supplies and slowing demand. Forward gas prices tracked the movements of oil and also closed the quarter with significant losses. Prompt power prices also declined throughout most of the fourth quarter, on the back of the falling fuel and carbon prices, healthy generation margins, as well as weak electricity demand due temperatures above the seasonal norm and the impact of the economic slowdown. Forward power prices also responded to slumping primary energy and emission forward markets, and the expected impact of the economic downturn in electricity consumption. Carbon allowances were no exception to the generalised bearish sentiment. Despite long-term bullish signals coming from a stricter Phase 3 ETS, European carbon allowances also shed 34% of their value over the fourth quarter of 2008, on indications that CER imports could be enough to cover the current phase short and declining emissions from the industrial and power sectors.
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After breaking all records in July, the prices of all energy commodities collapsed. The credit crisis – which prompted the failure or buyout of several of the most important private financial institutions globally and is now expected to lead the developed world into recession – had profound impacts on the energy markets. After oil prices rose to an all-time record in both nominal and real terms in mid July, prices began a volatile descent that still looked unstoppable at the close of the quarter. The rapidly deteriorating economic outlook for the OECD economies and prospects of their slump biting into the growth of developing economies brought freight rates and coal FOB prices crashing down, a double whammy on European delivered prices. Spot gas prices were highly volatile during the summer maintenance period and were one of the few commodities to close the quarter with a net gain, but forwards declined in line with the bearish oil and coal markets. Northern European spot power prices closed with an increase as well, driven by the return of normal demand levels after the holiday period and tight systems. Forward power prices, on the other hand, declined along with the lower cost of fuels, although supply risk premiums prevented prices from falling as severely as their fuel counterparts. Carbon allowances were no exception to the generalised decline, although in this period of high volatility and uncertainty, oil seemed to be the key driver, rather than more fundamental drivers such as forward German power or the implied fuel switching price. In the special topic of this Energy Market Analyst, we look at the fundamentals of the oil market, search for evidence of speculative activity and assess what have been the relative impacts of fundamental and non-fundamental drivers on global crude oil prices.
In this edition of Energy Market Analyst we examine the drastic changes that Northern Europe’s power generation fleet will undergo over the next decade. European and domestic policies will lead to significant retirements and decommissioning of coal and nuclear capacity, particularly in Germany and the UK. We look at the different investment options to fill the resulting generation gaps and the way these affect the power markets and prices. We also look at the trends in the second quarter of 2008, which saw all energy commodities break all time records. Global oil prices added a staggering 40% in only three months, driven by a steady and firm demand from developing countries, and a backdrop of increasing geopolitical risk. Gas forward prices also firmed to previously uncharted levels, taking direction from the bullish oil market and recurrent supply issues. European coal also rocketed to virgin territory, rising 65% over the quarter on a combination of firming freight rates and an increasingly tight Pacific market. All time records were also registered in the forward Northern European power markets, which took direction from the very bullish coal and gas markets, whereas spot prices generally firmed on the busy plant maintenance period. EUAs also registered a northbound drift, following the wider energy complex upwards.
In this issue of EMA we look at the developments of the first quarter of 2008, where energy commodities continued to break records, with oil, gas, coal and power all closing the period at levels significantly above those recorded over the same quarter in 2007. After a muted start to the year, EUA prices finally took the same direction as the energy complex and began rising at the start of February. This issue also looks in detail at the freight markets for oil and coal, where we show that, in this very cyclical market, prices could come down over the next couple of years. However, the extent to which that occurs will be largely determined by the incremental demand for dry bulk commodities arising from Asia during that period.
In this issue of Energy Market Analyst we review the main developments of the energy complex in 2007, where a series of contingencies in oil, coal and gas supply combined with growing Asian demand to push energy prices up to record levels. Our special topic looks at the evolution of road transport emissions against the back-drop of the EC’s desire to see a 20% reduction in 1990 CO2 emissions by 2020. We find that the increase in emissions from growing motorisation in the EU would be difficult to offset through relying on gradual improvement in vehicle emissions limits and the current proposals for sustainable bio-fuels.
This issue of the Energy Market Analyst looks at the behaviour of the energy and carbon markets over the last few months – charting the steady rise of the energy complex. This edition’s special topic looks at the implications of the EC's 20 / 20 / 20 targets for the longer term carbon market. The report finds that meeting the EC emissions reduction targets hangs largely on attaining ambitious energy efficiency and renewable generation targets. Success in reaching those efficiency and renewables goals are crucial to achieving significant emissions reductions from the power sector. In particular, failure to meet the efficiency target will require significant additional investment in renewable energy to make up for the shortfall.
This issue of EMA looks at the main developments of the energy and carbon markets in the June – July period. It also looks in greater detail at the topic of Atlantic Basin arbitrage and whether there is any evidence that this is leading to price convergence between North European gas markets and the US Henry Hub gas market.
