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Falling from a Height the Impact of the Fiscal Cliff on the Energy Sector
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December 2012
datawatch Summary
p. 3 FX, Interest Rates, Credit and Equity Indexes p. 15 - 17
ICE Introduces New FX Products CME Launches Interest Rate Swap Futures S&P Dow Jones and TMX Launch Preferred Share Laddered and Equal Weight Sector Indices BM&FBOVESPA Trades New ETF ASX to Quote Australian Government Bonds New SPDR ETF Launched on Xetra Xetra Launches new iShared ETF Eurex Clearing Launches EurexOTC Clear for Interest Rate Swaps CBOE Introduces CBOE Low Volatility Index NYSE Euronext Expands Short Term Options
Editorial
The results of the US presidential elections brought us what they were expected to bring: more environmentally-focused policies on the horizon. Needless to say, promises of a balanced approach and the announcement of an all-of-the-above energy strategy have not removed questions over future US shale gas expansion and imports of Canadian oil from the tar sands.
Data News
Power Markets p. 4-5
EEX Launches Power Day Futures EEX Expands Transparency Data from Bulgaria NASDAQ OMX Launches New Genium INET Functionality and Products CME Delists ERCOT and MISO Products Platts to Extend German Forward Curve Assessments BRIX Launches Weekly Contracts
Other Matters
p. 18 - 19
p. 6-9
CME Adds 352 Energy Futures and Options Argus Launches ANEATM LNG Forward Swap Assessments Baltic Exchange Launches Weighted Forward Curves for Tanker FFAS Genscape Launches ARA Weekly Gasoil Storage Report Platts to Standardize Global Bunker Fuel Conversions Platts Launches US Gasoline Component Assessments Platts Launches North Asia Physical Bunkers eWindow Platts Starts Coal Freight Assessments CME Delists Oil and Natural Gas Futures Platts to Cease Assessing Clean UKC-Med 30kt Platts to Suspend Publication of US Lube Postings EEX and Powernext to Create a pan-European Natural Gas Market ASX Finalizes Disclosure Rules for Mining,Oil and Gas FERC to Improve Transparency in Natural Gas Market Price Genscape and Commodity Vectors to Deliver Worldwide LNG Tracking Extension of ICE NY Harbor Heating Oil and RBOB Gasoline Futures Listing Cycle Expansion for CME Refined Products Platts Expands FC Assessments for US Refined Products
Eurex Exchange Launches Advanced Derivative Trading System Wall Street Journal Launches MarketWatch Retirement Service Eurex Launches Securities Lending CCP Service IHS Adds New Content ASIC Changes Market Integrity Rules for Australia Singapore Broker to Enter ICE Futures Europe Markets Bursa Malaysia Signs MoU with Shanghai Stock Exchange CFA and Eurex to Enhance Futures Market Structure in China CBOE Holdings to Transition SPXpm from C2 To Hybrid Trading
p. 20 - 21
p. 22 - 23
p. 10-11
HKEx Complete Acquisition of LME First ETFs Tracking Platinum and Silver Prices on HKEx CME Launches Implied Inter-Exchange KCBT-CBOT Futures Spread CME Lists Aluminum MW U.S. Transaction Premium (Platts) Futures RICI Index Adds NYSE LIFFES Robusta Coffee and Cocoa Futures FIS Launches OTC Options in NOLA Urea Fertilizer Market ICAP Launches Global Iron Ore Desk in London and Singapore ETFS Launches ETC on a Commodity Basket ex Agriculture and Livestock
Argus Launches ANEA LNG Forward Swaps Assessments Argus Launches First Southeast Asian LNG Price Indication Argus Expands Coverage of Argus Latin American Markets ZEMA Adds More Data Sources
In Depth
p. 24 - 27
Falling from a height the Impact of the Fiscal Cliff on the Energy Sector
The energy sector has recently become a bastion of hope for the US. Despite the year-on-year growth in the shale gas and oil industries, continued bickering in Washington is causing serious concern over what consequences no compromise could have on the sector. Could a fall from the Fiscal Cliff at year-end burst the bubble for the sector or could the sector itself be the catalyst for keeping the economy afloat during stormy weather?
December 2012
The results of the US presidential election brought us what we expected it to bring: more environmentally-focused policies for the coming years ahead. Needless to say, promises of a balanced approach and the announcement of an all-of-the-above energy strategy doesnt change the fact that questions remain over the future of US Shale gas expansion and imports of Canadian oil from the tar sands. The decision on the fate of the $7 billion Keystone XL project is one of the most highly anticipated. As President Obama delayed the decision until after the election, pressure from both sides reached a critical point. Senators are now calling on the president to stop procrastinating. Keystone XL opponents are marching outside the White House. Which side will end up winning is not clear yet. A decision on the approval of the pipeline will be a real test for the president, whose election campaign included seemingly contradicting and somewhat mutually-exclusive promises of new jobs, an improved economy, energy independence and efforts to slow down climate change and address environmental concerns. The expansion of shale gas production is under pressure. Most likely, debates on shale gas regulations will extend well into 2013 and maybe after. Shale gas production is expected to see the adoption of best practices in well development and completion, as well as a requirement to disclose what ingredients have been used in hydraulic fracturing mixtures. The discussion on liquefied natural gas exports will likely hit obstacles posed by protectionists, who continue to raise concerns about the possible impacts of natural gas exports on domestic prices. While balancing the interests of environmental activists and oil producers by the president can be tricky, we can be sure of one thing: the environmental agenda is here to stay for the next four years. President Obama started off his second term with promises of taking more measures towards curbing climate change. He is already promising to double his efforts to clean energy production and to remove carbon from the atmosphere. His administration has started to develop domestic energy production from resources available on the Outer Continental Shelf. At the end of November, Secretary of the Interior announced lease sales for renewable energy development in federal waters of the Atlantic Ocean. About the same time, the Department of Energy awarded funding for Batteries and Energy Storage Hub in support of electric cars and renewable power generators. In the coming years we are likely to witness an even more active EPA. Pending regulations that have been dragging for some time will finally come to fruition. We will see the completion of the rule limiting mercury emissions from coal and oil-fired power plants. A GHG emissions standard for new fossil-fueled energy plants will see a final stage of reviews. Coal-ash regulations will also be approved and a cooling-water intake rule for thermal generating plants will likely be wrapped up by the summer of 2013. In addition to this, we are likely to see some low resistance from Congress in extending the wind PTC after its expiration at the end of 2013. What will all of this bring to those of us whose line of work involves dealing with the constant emergence of new data providers and the ever-growing number of market data reports? No doubt, weather forecasting will remain one of the main sources of expanding services and new data will set renewable power generation targets. A reduction of the granularity of electricity scheduling data will bring more challenges to analysts and will require a significant increase in data storage and processing capacity. More emission-reduction financial products will be introduced and public databases tracking the ingredients of fracking liquids will be added to the mix.
Olga Gorstenko
Editor
Have an idea for an article or would like to contribute to an upcoming issue? Write to us at datawatch@ze.com To access previous issues of ZE DataWatch, go to datawatch.ze.com
Power Markets
process and the first publication of Bulgarian generation data is scheduled for the first quarter of 2013. By reporting the data, companies will be able to use the Transparency in Energy Markets platform to implement their publication requirements under REMIT. Under this EU regulation, the market participants are required to disclose insider information which is relevant for pricing in power and natural gas trading. Furthermore, reporting of the data on the transparency platform also forms an important step in increasing transparency on the Bulgarian market and, thus, promoting its development. The quality and flexibility of the transparency platform promotes the fast and effective integration of data reported from further countries. Consequently, by using the transparency platform, EEX gives market participants throughout Europe the opportunity to fulfill their publication requirements under REMIT.
This following graph shows similar products to the Phelix Day Futures traded on EEX. The products are Phelix Base Vs Load Weekly Future Contract:
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Power Markets
ERCOT South Competitive Load Zone Day-Ahead 5 MW Off-Peak Futures ERCOT Houston Competitive Load Zone Day-Ahead 5 MW Peak Calendar-Day Futures ERCOT West Competitive Load Zone Day-Ahead 5 MW Peak Calendar-Day Futures ERCOT North Competitive Load Zone Day-Ahead 5 MW Peak Calendar-Day Futures ERCOT South Competitive Load Zone Day-Ahead 5 MW Peak Calendar-Day Futures ERCOT Houston Competitive Load Zone Day-Ahead 5 MW Off-Peak Calendar-Day Futures ERCOT West Competitive Load Zone Day-Ahead 5 MW Off-Peak Calendar-Day Futures ERCOT North Competitive Load Zone Day-Ahead 5 MW Off-Peak Calendar-Day Futures ERCOT South Competitive Load Zone Day-Ahead 5 MW Off-Peak Calendar-Day Futures MISO Indiana Hub (formerly Cinergy Hub) Calendar- Day Peak LMP Futures (CC)
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datawatch December 2012 CME Adds 352 Energy Futures and Options
Effective December 16, 2012, 352 energy futures and options will be listed for trading on CME Globex pending regulatory review periods. These products will be available for customer testing in New Release starting on Monday, December 3.These contracts are listed with, and subject to, the rules and regulations of NYMEX. Settlement prices will be published for the synthetic futures to support customer options pricing models.
The complete list of product names and codes are available here.
Fossil Fuel Markets Baltic Exchange Launches Weighted Forward Curves for Tanker FFAS
Effective November 8, 2012, Baltic Exchange launched an activity weighted forward curve for the tanker forward freight agreement (FFA) market in response to market demand. The new method of calculation considers the level of market activity each panel broker has assumed over a specific period and reflects this by weighting their submissions correspondingly. The result is a forward curve which better echoes actual market activity and experience, strengthening the position of the Baltics forward curves, which serve mark-to-market purposes.
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datawatch December 2012 EEX and Powernext to Create a pan-European Natural Gas Trading Market
On November 6, 2012, European Energy Exchange (EEX) and Powernext SA signed a Memorandum of Understanding to combine their natural gas market activities and pool their respective expertise to create a pan-European gas market. This project is subject to the customary regulatory and competition approvals. Depending on the due completion of the relevant regulatory and competition requirements, the EEX and Powernext gas cooperation should go live in the first quarter of 2013. To facilitate natural gas trading, they will offer the market participants all gas products on a joint Trayport platform as it meets the requirements of the gas trading community and has already been used by Powernext since 2004. In the framework of their cooperation, EEX and Powernext will remain two separate gas exchanges and will not create a joint venture. In the future, they are planning to launch other European gas products together on the joint trading platform. Our aim is to deliver a unique pan-European gas offering focused on the physical and financial needs of the trading community, said Peter Reitz, Chief Executive Officer of EEX. We are building on our long-standing and successful cooperation in power trading. This is a very logical step for both our organizations. Moreover, we believe that, together, we have a convincing proposal for the participants in the gas sector, according to JeanFranois Conil-Lacoste, CEO of Powernext. In addition, he said it will benefit the integration of the European gas markets through the introduction of cleared geographical spread products. Elliott Piggott, CEO of Trayport, said: We are extremely pleased that EEX and Powernext have selected our proven trading platform for this challenging initiative. The Trayport team will provide the highest level of support to make this cooperation a success. As a result of the integration of the products within one system, joint spread products will be offered for trading: NCG/TTF, PEG Nord/TTF, GASPOOL/NCG, PEG Sud/PEG Nord, GASPOOL/TTF and PEG Nord/NCG. Clearing and settlement of all transactions will be provided by Europes leading energy clearing house, European Commodity Clearing AG (ECC).
ASX-listed mining and oil and gas companies will be provided with a 12-month transition period, with the new rules coming into effect on 1 December 2013.
ASX Finalizes Disclosure Rules for Mining and Oil & Gas Companies
On November 8, 2012, ASX introduces new listing rules to enhance disclosure of reserves and resources by ASX-listed mining and oil and gas exploration and production companies after receiving regulatory approval. The new initiatives include: Enhanced reserves and resources reporting, Improved flexibility for small to mid-cap companies to raise additional capital, Streamlined timetables for rights issues, On-market bookbuild facility, Equity research scheme for small to mid-cap companies, Revised and updated listing rule guidance notes, particularly for continuous disclosure.
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datawatch December 2012 Extension of ICE NY Harbor Heating Oil Futures and RBOB Gasoline Futures
Effective October 31, 2012, the ICE Heating Oil futures and the ICE RBOB Gasoline futures contract listing has been extended up to 48 consecutive months and 36 consecutive months respectively. See below an example of January 2013 future contract traded on ICE: JU KL US UT Gulf Coast Jet (Argus) Up-Down Futures Los Angeles CARB Diesel (OPIS) vs. NY Harbor ULSD Heating Oil Futures Gulf Coast ULSD (Argus) UpDown Futures Gulf Coast No. 2 (Platts) UpDown Financial Futures
These contracts are listed with, and subject to, the rules and regulations of NYMEX.
Group Three ULSD (Platts) vs. NY Harbor ULSD Heating Oil Futures NY Jet Fuel (Platts) vs. NY Harbor ULSD Heating Oil Futures NY Jet Fuel (Argus) vs. NY Harbor ULSD Heating Oil Futures NY ULSD (Argus) vs. NY Harbor Last listed ULSD Heating Oil Futures December 12 NY ULSD (Platts) vs. NY Harbor ULSD Heating Oil Futures NY Heating Oil (Platts) vs. NY Harbor ULSD Heating Oil Futures Los Angeles Jet Fuel (Platts) vs. Last listed NY Harbor ULSD Heating Oil March 13 Futures Los Angeles Jet (OPIS) vs. NY Harbor ULSD Heating Oil Futures
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RICI Index Adds NYSE LIFFES Robusta Coffee and Cocoa Futures
On November 12, 2012, Rogers International Commodity Index (RICI) announced plans to add NYSE Liffes Robusta Coffee and Cocoa futures contracts at the end of January 2013. The new contracts will replace the existing Intercontinental Exchanges Arabica Coffee and Cocoa contracts and will give NYSE Liffes Robusta Coffee and Cocoa contracts weightings of 2% and 1% respectively. The index was designed to meet the need for consistent investing in a broad-based international vehicle; it represents the value of a basket of commodities consumed in the global economy, ranging from agricultural to energy and metals products. The value of this basket is tracked via futures contracts on 37 different exchange traded physical commodities, quoted in five different currencies, (soon to be six with Sterling) listed on 12 exchanges in five countries, the company added.
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datawatch December 2012 ETFS Launches ETC on a Commodity Basket ex Agriculture and Livestock
On November 29, 2012, ETFS Commodity Securities Limited issued a further ETC (Exchangeable Traded commodity) that has been tradable on Xetra. ETC name: ETFS Ex-Agriculture and Livestock DJ-UBSCI Asset class: commodity basket ISIN: DE000A1RX1P2 Management fee: 0.49 percent Benchmark: DJ-UBS Commodity ex-Agriculture and Livestock Index This enables investors to participate for the first time in the performance of a commodity basket excluding the agricultural and livestock sectors. The ETC tracks the performance of the commodity future from the energy, industrial metals and precious metals sectors.
SAVE THE DATE ZE COMPLIMENTARY EUROPEAN LUNCH & LEARN London, UK l Feb 21, 2013
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datawatch December 2012 ICE Futures EUA Auction Contract Auction Specifications
On November 20, 2012, ICE published the Auction specifications for the ICE Futures EUA Auction Contract. The Auction terms remain unchanged; the Auction volumes are as following: November 21, 2012: December 5, 2012: 6,500,000 EUA 5,758,000 EUA
For Auction Specification click here. For Contract Specification click here.
ICE Reopens Emissions Daily Futures Market and Launches Phase III Daily Futures
On December 10, 2012, ICE Futures Europe reactivated its spot emissions market after trade was frozen for nearly two years due to cyber thefts on a number of EU CO2 registries. The exchange reopened its daily futures market Certified Emissions Reductions (CER) and EU Allowances (EUA) from the second phase of Europes Emissions Trading Scheme. Also, ICE launched daily futures for EUAs from the schemes third phase (2013-2020). After cyber criminals hacked into several national emissions registries between 2010 and 2011 and stole more than 3 million carbon permits, ICE suspended spot trade early last year. On the same date, ICE Futures Europe introduced a new daily futures contract for Phase III EU Allowances. The Phase II and III EUA daily futures and the CER daily futures contract are physically deliverable and represent a lot size of 1,000 emission allowances and 1,000 certified emission reduction units respectively. Each EUA and CER represents an entitlement to emit one tonne of carbon dioxide equivalent gas. The daily futures contracts will expire on a daily basis. ICE Code Description ECX EUA ICE EUA Phase II Daily Futures Contract Daily EUA Phase- ICE EUA Phase III Daily Futures Contract 3Daily ECX CER ICE Certified Emission Reduction Units (CER) Daily Futures Contract CRE NY Jet Fuel (Argus) vs. NY Harbor ULSD Heating Oil Futures 7Y NY ULSD (Argus) vs. NY Harbor ULSD Heating Oil Futures UY NY ULSD (Platts) vs. NY Harbor ULSD Heating Oil Futures YH NY Heating Oil (Platts) vs. NY Harbor ULSD Heating Oil Futures The following graph shows the ICE EUA Phase II Daily Futures Contract and ICE Certified Emission Reduction Units (CER) Daily Futures Contract:
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Starting December 5, 2012, EEX also re-launched Carbix CO2 as an index of the CO2 index family (referred to as the European Carbon Index ECarbix) on a daily basis, as well as a monthly average value. Considering the primary and secondary market, all calculations are based on a weighted volume of transactions on the spot market. EEX starts with the introduction of an ECarbix (EUA). The following graph shows the Carbix CO2 emission allowances traded on EEX:
In Delivery CRE Month Certified Emission Reduction (CER) Futures In Delivery CRY Month Certified Emission Reduction (CER) Option Certified CPL Emission Reduction Plus(CERplus) Futures
VX
December 2012
GY
VX
REU
VX
ERO
GY
First three consecutive contracts months plus eight quarterly contracts on a rolling basis, starting with the nearest quarter; December contract month of subsequent years through 2020. First three consecutive contracts months plus eight quarterly contracts on a rolling basis through March 2015.
These contracts are listed with, and subject to, the rules and regulations of NYMEX. An example of the CPL December 2013 futures contract currently traded on CME is shown below.
GY
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FX, Interest Rates, Credit and Equity Indexes S& P Dow Jones Indices and TMX Launch Preferred Share Laddered and Equal Weight Sector Indices
On November 19, 2012, S&P Dow Jones Indices and TMX Group Inc launched three new Canadian Indices including: S&P/TSX Preferred Share Laddered index, the S&P/TSX Equal Weight Global Gold index and the S&P/TSX Equal Weight Industrials index. Each of the indices has been licensed to BMO Asses Management for potential exchange traded products to be listed on Toronto Stock Exchange. The indices were created to fill the needs for industry specific indices that are liquid enough to serve as the basis for investment products and relevant enough to serve as key benchmarks of performance. Index Code TXPL TXGE TXIE Description S&P/TSX Preferred Share Laddered Index S&P/TSX Equal Weight Global Gold Index S&P/TSX Equal Weight Industrials Index
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The following graph shows similar products to the newly released Bond Index ETF. The products are 30 year US Treasury Bond and the Long-term US Treasury Bond.
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datawatch December 2012 Eurex Exchange Launches Advanced Derivative Trading System
On December 4, 2012, Eurex Exchange launched advanced trading system which benefits participants in significantly better performance, more choice and enhanced functionalities all based on Eurex Exchanges reliability. The roll out started with property, inflation and weather derivatives, a total of 24 products. The production launch will be followed by a product migration phase in a stepwise approach; next phase is scheduled for February. Full roll-out is expected to conclude in May 2013. Its key features include: Based on Deutsche Brse Groups global trading architecture, Offers greater system flexibility, allowing for reduced timeto-market when introducing new financial products and new functionalities, Latency reduced to minimum due to high performance messaging architecture allowing faster communication, Includes enhanced calendar spreads, user-defined strategies and streamlined processing and reporting. Jrg Spillmann, member of the Eurex Executive Board and responsible for IT & Operations, said this next generation system will substantially change the way traders and investors access the worlds most dynamic markets, adding it will establish a clear competitive advantage for their participants.
Other Matters
Thomas Book, member of the Eurex executive board and responsible for clearing, said: Our new clearing offering for securities lending has been designed with support from key market participants who have committed to utilize the service to achieve a substantial reduction in capital allocation. We have completed testing of our offering and are ready to start a pilot phase with our early adopters. Our set-up will enable customers to make use of their existing connectivity to these dynamic service providers for trade and collateral management and to take the benefit of substantial improvements to the current market structure by delivering significant capital and operational benefits to all participants, added Book.
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datawatch December 2012 Singapore Broker to Enter ICE Futures Europe Markets
On November 29, 2012, Intercontinental Exchange (ICE) announced that a number of Singapore ICE Block Broker Exchange Participants can have access to ICE Block to enter Block Trades, as long as they hold a Capital Market Services (CMS) License, as required by Monetary Authority of Singapore pursuant to requirements under Section 82(1) of the Securities and Futures Act (CAP. 289).
Other Matters
We are very pleased to have signed this agreement with CFA as first non-Chinese market operator and look forward to enter into a fruitful partnership with this leading institution of Chinas futures market, said Michael Peters, member of the Eurex Executive Board. Our first joint training sessions have turned out as very successful, and we are already planning the next seminars to be held in early 2013.
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December 2012
Monthly analytics for Power, Natural Gas, Crude Oil and Environmental markets. Graphs prepared with ZEMA.
Actual Weather (AccuWeather) With the onset of winter, a steep decline in temperatures was observed on the East Coast. The weather on the West Coast remained mild and temperature declined very gradually.
North American Electricity DA Prices (ICE) Eastern power prices dropped between November and December on the backs of lower natural gas prices and sufficient generation resources. In New York, prices fell by 8 USD/MWh to 57 USD/ MWh. In New England, electricity prices also declined with ISONE boasting generation capacity of 33,000 MW, which exceeds the peak demand of 22,355 MW. California prices remained on the same level with mild temperature.
With expectations for steady fundamentals, electricity forwards did not change much between November and December. The longterm trend remained on the same level as in the previous month.
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December 2012
Monthly analytics for Power, Natural Gas, Crude Oil and Environmental markets. Graphs prepared with ZEMA.
Henry Hub Natural Gas Forward Curve (ICE) With unchanged fundamentals on the long term outlook, ICE Henry Hub natural gas futures remained at approximately the same level with only 2% change in the price compared to November 2012.
North American Natural Gas Spot Prices (ICE) With the warmer-than-average weather expected across much of the U.S., the natural gas spot prices tend to decline. However, on some days, temperature in some east coast cities, like New York, Philadelphia and Washington, were 9 to 13 degrees below norm creating high system demand supporting higher price volatility in Transcontinental Gas hub.
Crude Oil Brent vs. WTI Prompt-Month Contract (NYMEX) Prompt month contract for Brent Crude Oil stayed 14 USD/Bbl above WTI prices on average in the past twelve months. Brent Crude price continued to fall for the third consecutive month to 105 USD/Bbl while WTI price slightly increased to 87 USD/Bbl.
Forward Curve (NYMEX) WTI crude oil futures on the NYMEX moved higher in comparison with November because of optimism regarding a solution to the fiscal cliff issue as well as US crude supplies dropping to 4.1 million barrels in the beginning of December. In December, Brent future prices rose by more than 1 USD/ Bbl to 109 USD/Bbl.
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datawatch December 2012 Argus Launches ANEA LNG Forward Swaps Assessments
Singapore, 4 December 2012 Leading energy and commodities price reporting organisation Argus has launched a new series of northeast Asian LNG forward swaps assessments in the Argus LNG Daily report, known as ANEATM swaps. The launch reflects growing liquidity in LNG derivatives, as well as industry calls for a reliable forward curve. ANEA forward swaps assessments cover three forward-month periods from the furthest ANEA physical spot assessment. This means that market participants can currently see the value of northeast Asian LNG swaps trading for March, April and May 2013. ANEA physical spot assessments represent cargoes delivered exship (des) to ports in Japan, South Korea and Taiwan, trading 6-12 weeks before the date of delivery. The LNG market is evolving at a rapid pace and the development of a financial derivatives market is key to enabling market participants to manage their risk effectively, Argus Media chairman and chief executive Adrian Binks said. The launch of ANEA forward swaps assessments in the Argus LNG Daily report provides stakeholders with transparency about the costs of hedging. Argus new ANEA swaps coverage complements the Argus LNG Daily reports existing suite of Asia-Pacific and European spot price assessments, market commentary and global netback pricing. The Argus LNG Daily report provides price assessments for AsiaPacific, the Middle East, west Africa, Europe and the Caribbean, information about shipping movements, market-moving news and analysis. The report has been carefully designed to provide global LNG market participants with the critical insights and key LNG statistics and data needed to stay ahead of market developments, as well as to help shape commercial strategies.
Increased production of crude oil in the US and ever rising demand from Asia are reshaping the way oil is traded. For Latin America, this shake up and the resulting uncertainty as to future demand patterns means that crude exports are constantly looking for new destinations such as China and India. At the same time, intra-regional refined products trade remains a key balancing tool. And, the growth of biofuels production in Brazil and Argentina has sharply increased Latin Americas connection to North America and Europe. In this changing landscape, the new Argus Latin Markets weekly market service provides insight on developing trends by highlighting detailed pricing information for the most actively traded crudes, refined products, ethanol, and LPG markets. Expanded coverage also includes: Comprehensive list of 40 price assessments for actively traded energy commodities Summary and overview of global benchmark prices for quick reference Insightful industry news Freight assessments for the most active and relevant routes for export and import of commodities Analytical trend charts for crude, refined products and LPG assessments
If you are not an existing Argus Latin Markets subscriber, request your complimentary trial here
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In Depth
FALLING FROM A HEIGHT THE IMPACT OF THE FISCAL CLIFF ON THE ENERGY SECTOR
by Ian Mathieson
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In Depth
FALLING FROM A HEIGHT THE IMPACT OF THE FISCAL CLIFF ON THE ENERGY SECTOR
This growth in jobs in the industry has come largely about due to the extensive development of shale oil and gas in the US. The expansion in hydraulic fracking in recent years has been a large factor in the depression of natural gas prices. While a financial slow down caused by the Fiscal Cliff could impact demand for natural gas, the recent boom has brought with it extremely low prices, which could mean that the demand impact would be minimal. Politically natural gas is good for the US economy in terms of jobs and energy independence. With both of these factors in play, it would seem unlikely that either political party would want to risk rocking the boat. If no agreement is reached to avoid the Fiscal Cliff and demand for natural gas suffers, there will likely still be significant export opportunities. According to Federal Energy Regulatory Commission (FERC), there are currently 19 Liquefied Natural Gas (LNG) export terminals that have been proposed across North America. Just recently, the US Energy Department released a report suggesting that it would have a net economic gain by exporting its newly discovered glut of natural gas.6 This is a contentious issue in the US where some people argue that natural gas should be kept in North America to help keep gas prices low and thus maintain a competitive advantage over other markets. Others contend that the free market should allow cheap North American
shale gas to be sold on the open market at the risk of rising gas prices at home. The decision on these export facilities is not due until 2013, but that decision could have a larger bearing on the price of natural gas than the Fiscal Cliff.
The wind PTC has been successful over the past 20 years yet there is much debate over whether it should be renewed or not. The growth in wind generation projects has increased the US ability to manufacture wind generators to just under 14 GW annually.8 The wind industry now supports approximately 30,000 workers in the US.9 Beyond the PTC, installation of additional wind capacity will most likely depend on Renewable Portfolio Standards (RPS), and overall demand. Currently, 29 states have binding RPS. These standards have helped to drive the development of wind generation in the US. However, in some cases such as Texas, the RPS has already been exceeded in large part thanks to the increase in wind production. From a regulatory
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In Depth
FALLING FROM A HEIGHT THE IMPACT OF THE FISCAL CLIFF ON THE ENERGY SECTOR
point of view there is the potential that states could increase their RPS in the future. Also, for those states that have a percentage RPS, an increase in demand would necessitate increased renewable generation. At this point however, EIA is estimating limited demand growth over the next few years.10 The length of a PTC renewal has historically had an impact on the speed of development that it creates. When there is uncertainty surrounding PTC renewal there is typically a dramatic increase in development of wind generators. This occurred in 2012 and is similar to the development that occurred prior to the previous renewals in 2000, 2002 and 2004. This highlights one of the benefits of a short-term PTC renewal, a greater likelihood of short term economic boost. If an indefinite or long term PTC is created, there is not necessarily a sense of urgency to build wind generation quickly, particularly if the previous year had been production heavy due to uncertainty. Further, many people believe that it is important for wind generation to stand on its own feet in the market which would require the PTC to eventually disappear. Some believe that while the PTC is in place, manufacturers will never have the impetus to decrease costs and improve their technology to the point where wind can compete without the subsidy. These ideas might be tested depending on the outcome of the Fiscal Cliff negotiations. It is important to note that while the PTCs for other resource types such as biomass and municipal solid waste will remain in effect until the end of 2013, their impact on the generation stack of the United States is limited at this point.
Closing thoughts
The Fiscal Cliff is likely to have an impact on the energy industry regardless of negotiations in the next couple of weeks. If a deal is struck which prevents an economic fall into recession, then demand for natural gas could continue to be strong and spur further development of shale gas. Further, any Fiscal Cliff development will impact wind generation through a decision on the production tax credit. If no deal is struck and the US feels the full pain of the Fiscal Cliff, development of new wind generation could slow dramatically. Furthermore, the US might look to export its natural gas in order to continue benefiting from the development of the domestic fracking operations.
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In Depth
American Wind Energy Association. (2012, 10 18). Industry Statistics. Retrieved 12 17, 2012, from American Wind Energy Association: http:// www.awea.org/learnabout/industry_stats/index.cfm 2 Congressional Budget Office. (2011, 10 26). Discretionary Spending. Retrieved 12 17, 2012, from Congressional Budget Office: http://www. cbo.gov/publication/42728 3 Page, B. (2012, 5). Congressional Budget Office. Retrieved 12 17, 2012, from http://www.cbo.gov/sites/default/files/cbofiles/attachments/ FiscalRestraint_0.pdf 4 Ibid. 5 U.S. Bureau of Labor Statistics. (n.d.). Employment, Hours and Earnings from Current Employment Statistics. Retrieved 12 17, 2012, from Bureau of Labor Statistics: http://data.bls.gov/cgi-bin/dsrv?ce 6 Lefebvr, B., Tracy, T., & Cameron, D. (2012, 12 05). UPDATE:DOECommissioned Study Shows LNG Exports Generally Good for U.S. Retrieved 12 17, 2012, from Bloomberg Businessweek: http://investing.businessweek.com/research/stocks/news/article. asp?docKey=600-201212051627DOWJONESENRGYSVC0018141
1¶ms=timestamp%7C%7C12/05/2012%204:27%20PM%20ET %7C%7Cheadline%7C%7CUPDATE%3ADOE-Commissioned%20 Study%20Shows%20LNG%20Exports%20Generally%2 7 American Wind Energy Association. (2012, 10 18). Industry Statistics. Retrieved 12 17, 2012, from American Wind Energy Association: http:// www.awea.org/learnabout/industry_stats/index.cfm 8 Brown, P. (2012, 6 20). U.S. Renewable Electricity: How Does the Production Tax Credit (PTC) Impact Wind Markets. Retrieved 12 17, 2012, from Congressional Research Service: http://www.fas.org/sgp/ crs/misc/R42576.pdf 9 Ibid. 10 Ibid. 11 United Nations Economic and Social Commission for Asia and the Pacific. (2012, 12 14). Asia-Pacific increasingly affected by global economic slump, says ESCAP. Retrieved 12 17, 2012, from United Nations Economic and Social Commission for Asia and the Pacific: http://www.unescap.org/news/asia-pacific-increasingly-affected-globaleconomic-slump-says-escap
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