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Investment Analysis Clubs / The BMW Method
|Subject: Re: Excelon - EXC||Date: 12/28/2012 9:48 AM|
|Author: PaulEngr||Number: 40871 of 41443|
The natural gas situation in Europe is so ridiculous that it is far cheaper to liquify natural gas in the US and export it to Europe. The Russians know it and are not idiots. When the time comes that shale gas whether US or Western European sourced becomes a threat they will have a choice of continued ridiculous profit margins but lower market share or to jump into the fracking business (shale or conventional) themselves.
Let us not forget also that especially offshore there are massive reserves of natural gas "ice" that haven't been touched either.
As to EXC market...what gas is doing is to INCREASE the cost of electricity because of dumbkopfs in Washington. Before the big run up (and down) of natural gas the price per BTU of natural gas was 4 times higher than coal in general although transport of both has an effect...Texas coal is literally dirt cheap because a lot of it is lignite/brown coal with BTU ratings as low as 3500 mmbtu/ton, literally dirt that burns. With new sources coming online currently natural gas is now ONLY 50% more expensive and that's with the glut on the market. EPA new rules are causing conversion to not combined cycle gas plants that take advantage of technology to reduce the cost differential but to simple turbine gas burners that are the same efficiency or less than the coal fire plants they are replacing. This is what Duke/Progress (largest US utility) at least is doing in many cases.
Nuclear plants (current ones, not some Gen IV designs) are strictly baseload stations. They are about 1/4 to 1/2 as cheap to produce electricity as coal even with current regulatory silliness. Their status in the country as far as operation goes is unlikely to change anytime in the near future, unlike coal that is moving towards more of an export market unless liquifaction (not unlikely given current oil prices) starts to grow. The environmental regulation is going to put upward pricing pressure on consumers while the utilities generate record profits from conversion to "cheap" natural gas (cheap relative to itself, not relative to coal/nuclear alternatives). The effect on EXC over the short term (as utilities negotiate with public utility boards) is reduced margins on non-nuclear/coal generation but increased margins on the remaining coal/nuclear producers over the longer term.
The more tricky one to predict is continued growth in cogen, small producers, and deregulation which is creating real competition on the production side especially in places like the PJM and CAISO grids. Time will tell whether other RTO's adopt the same deregulated generation environment.
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