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Canadian Blue-chip Industrial Forum
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Re: Anyone have the "Get ready for the 'natural gas apocalypse' " Globe article? TIA The Globe was referring to this Bloomberg article. At your service.
The glut of cheap natural gas from a single, gigantic, shale basin that straddles the Northeast, mid-Atlantic and Midwest has sparked a massive construction boom of power plants. Dozens have been built in the past two years alone. There’s just one problem: There isn’t nearly enough electricity demand to support all the new capacity. And as wholesale electricity prices plunge, industry experts are anticipating a fire sale of scores of plants in the region. Many, in fact, have already been sold along the PJM Interconnection LLC grid, the nation’s largest, encompassing 13 states from Virginia to Illinois. “Everything in fossil fuels is for sale,” said Ted Brandt, chief executive officer at Marathon Capital LLC, a mergers-and-acquisitions adviser in Chicago. “People are bleeding.” Drawing from abundant, cheap and nearby natural gas in the country’s most prolific shale field, the new plants are adding a gigantic amount of power generation -- more than 20 gigawatts --- to a region that arguably has more than it needs. The new gas-fired plants are also coming online at a time of market turmoil, buffeted by Obama administration efficiency policies that have helped tamp down demand and by the Trump administration’s determination to keep old coal-fired plants going. Spot wholesale prices at PJM’s benchmark Western hub slumped to an average of $28.79 per megawatt-hour last year, falling by more than half since 2008 as the shale boom took hold. Many players are exiting the market. “It’s a gas-driven apocalypse in the power market,” said Toby Shea, a New York-based analyst at Moody’s Investors Service. As prices slip, some see a buying opportunity. Blackstone Group LP and ArcLight Capital Partners LLC bought four Midwest plants from American Electric for $2.17 billion in September. That implies an average sale price of $417 a kilowatt, a fraction of the $1,000 a kilowatt cost to build a new gas plant. “It suddenly becomes a buyer’s market if the summer disappoints,” said Paul Pace, who heads KeyCorp’s energy lending team. Contributing to the a glut is the slowdown in coal-plant closures resulting from more favorable policies under the Trump administration. Some of the country’s smartest investors, including Blackstone, are buying these facilities at discounts, betting that a few hot or cold days each year will yield enough money to justify keeping them operating. Patches of extreme weather are also a motive for the building boom. The polar vortex sidelined a fifth of PJM’s power plants in the game-changing winter of 2014, when frigid weather forced some plants to suspend production. This resulted in a huge, if temporary, spike in electricity rates for consumers. Preventing another such shutdown is a primary focus for PJM: Now, power plants must be both efficient and reliable in extreme weather or face steep penalties. LED BulbsFinally, advances in efficiency, reducing demand for electricity, are converging with the gas glut to further depress the industry. Everything from the advent of LED light bulbsto Energy Star-certified refrigerators and appliances prompted PJM to slash its long-term growth forecasts to just 0.2 percent a year from 1 percent in 2014. Add in wind and solar, which are providing ever more energy to the grid, and the demand for new power plants looks even shakier. The industry will get a glimpse of where the market is heading on Tuesday when PJM is scheduled to release the results of an auction to secure its electricity supply. Prices are expected to continue to fall as another wave of new gas plants is about to come online. Given lackluster demand for energy, it’s surprising that power-plant valuations haven’t fallen more, said Ravina Advani, a New York-based managing director at BNP Paribas SA. One reason: Developers continue to attract new investors, including from Japan and Korea. Still, it’s just a matter of time before prices break lower, said Dean Murphy, a Cambridge, Massachusetts-based principal at the Brattle Group. “It’s like the housing market that is oversupplied and it takes longer to move your house,” he said. “Buyers have tons and tons of options.” |
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Msg # | Subject | Author | Recs | Date Posted |
57651 | Re: Anyone have the "Get ready for the 'natural gas apocalypse' " Globe article? TIA | samsung | 2 | 5/25/2017 7:36:49 PM |