Post on 15-Apr-2018
Energy Ventures Analysis1901 N. Moore St. Arlington, VA 22209(703) 276 8900
FUEL PRICE FORECASTING WITH A FOCUS ON COAL
APRIL 25, 2017
About Energy Ventures Analysis, Inc. (EVA)
EVA, Inc. is a management consulting firm for the U.S. energy industry and is focused on economic,financial and risk analysis for the electric power, coal, natural gas, petroleum, and renewable, andemissions sectors.
Since 1981, EVA has been publishing supply,demand and price forecasts as part of its FUELCASTsubscription service for these energy sectors.
EVA performs various analyses for an array ofclients that include:• power utilities,• fuel producers,• fuel transporters,• commodity traders,• regulators, and• financial institutions.
1Energy Ventures Analysis, Inc.
U.S. COAL PRIMER
2Energy Ventures Analysis, Inc.
Demand
3Energy Ventures Analysis, Inc.
• Power sector dominates demand for US coal
• Exports are an attractive market but only when US dollar is weaker than it is today
mm tons 2008 2009 2010 2011 2012 2013 2014 2015 2016
Electric Power Burn 1,040.4 930.8 970.4 932.0 822.5 857.1 850.3 736.6 670.6
Consumer stock change 2.9 28.7 (16.2) (2.4) 8.6 (42.8) (4.1) 40.2 (30.9)
Electric Power Receipts 1,043.3 959.5 954.2 929.6 831.2 814.3 846.3 776.8 639.7
Coke Ovens 22.4 15.2 21.1 22.1 20.9 21.1 21.7 19.5 16.5
Industrial/Commercial 59.9 50.9 49.1 47.8 44.8 45.0 45.3 40.3 34.1
Domestic Demand 1,125.7 1,025.5 1,024.4 999.4 896.8 880.4 913.3 836.6 690.2
Export metallurgical 42.5 37.1 56.1 69.0 68.2 61.2 57.6 44.6 40.5
Export steam 32.0 25.5 29.1 42.6 61.7 64.2 44.4 35.4 25.9
Total Exports 74.5 62.6 85.2 111.6 129.9 125.5 102.0 80.0 66.4
Total Demand 1,200.2 1,088.2 1,109.6 1,111.0 1,026.7 1,005.9 1,015.3 916.6 756.6
Production
4Energy Ventures Analysis, Inc.
mm tons 2008 2009 2010 2011 2012 2013 2014 2015 2016
Northern Appalachia 135.2 126.1 129.1 131.2 124.5 121.7 132.0 114.8 101.9
Central Appalachia 233.5 194.9 184.1 182.7 147.2 127.6 116.6 90.4 66.6
Alabama 20.4 18.7 20.1 19.1 19.6 18.4 16.6 13.2 9.1
Appalachia Total 389.1 339.7 333.2 333.0 291.2 267.7 265.1 218.4 177.6
Illinois Basin 99.0 102.3 105.1 115.8 126.9 131.6 136.8 123.3 98.2
East Total 488.2 442.1 438.3 448.7 418.1 399.3 401.9 341.7 275.8
Powder River Basin 496.0 455.7 468.4 462.6 419.1 407.6 418.2 398.6 313.7
Rockies 81.5 74.9 70.8 74.5 74.1 71.5 70.9 58.5 47.1
Lignite 75.7 72.5 78.9 81.1 78.9 77.0 79.5 70.9 71.5
Southwest 24.0 22.4 20.5 20.0 20.1 20.9 18.9 18.7 13.9
Interior 2.0 1.6 1.6 1.8 1.6 1.6 1.4 1.9 2.7
West Total 679.1 627.1 640.3 639.9 593.7 578.5 588.8 548.5 448.9
Alaska 1.5 1.8 2.2 2.1 2.1 1.5 1.5 1.2 0.9
Anthracite 1.7 1.7 1.7 2.2 2.3 2.1 1.9 2.0 1.5
U. S. Coal Total 1,170.5 1,072.7 1,082.5 1,093.0 1,016.2 981.4 994.1 893.4 727.0
Imports 32.2 20.9 17.8 11.4 7.6 7.3 9.5 9.6 8.8
Waste Coal
Total Production 1,202.7 1,093.6 1,100.3 1,104.4 1,023.8 988.7 1,003.6 903.0 735.8
Power Sector
5Energy Ventures Analysis, Inc.
• Takeaways• Electricity demand growth has disappeared
• Coal was the swing fuel in 2012, 2015 and 2016 because of low gas prices.
• Growth in renewables will eat into baseload generation (coal or gas)
0
500,000
1,000,000
1,500,000
2,000,000
2,500,000
3,000,000
3,500,000
4,000,000
4,500,000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Generation by Fuel Type (Thousand MWH)
Coal NaturalGas
Nuclear Hydro Other
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Generation by Fuel Type (Market Share)
Coal NaturalGas
Nuclear Hydro Other
Historical U.S. Steam Coal Prices
6Energy Ventures Analysis, Inc.
• In the last decade, coal prices have become quite volatile. • Impact on consumers is muted due to contract portfolios
$0.00
$10.00
$20.00
$30.00
$40.00
$50.00
$60.00
$70.00
$80.00
$90.00
$100.00
$110.00
$120.00
$130.00
$140.00
$150.00
$160.00
$170.00
Jan-
05
May
-05
Sep-
05
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06
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-06
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-07
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17
$/short ton
NAPP 13,000 Btu, 4.5#SO2 FOB rail
CAPP 12,500 Btu, 1.6#SO2, FOB rail
ILLB 11,500 Btu, 5.2#SO2 FOB barge
Rockies CO 11,700 Btu, 1% Sul FOB rail
PRB 8,800 Btu, 0.8#SO2 FOB rail
FORECASTING FUEL PRICES
7Energy Ventures Analysis, Inc.
Integrated Forecasting Is Required Due To Relationship Between Fuels
• Forecast of prices must reflect supply/ demand balances in each market (e.g., power, industrial, export, etc.)
• Forecasts often require iterations to reflect the demand/supply response to different price levels.
8Energy Ventures Analysis, Inc.
Short- and Long-Term Price Forecasts
• Long-Term forecasts typically reflect Short-Term price outlooks for the first few years and Long-Term outlooks for the balance of period. Both Short- and Long-Term Forecasts are influenced by market fundamentals (i.e., supply and demand).
• In addition, Short-Term forecasts are influenced by:• Relevant market developments• Weather• Stockpile levels• Forward price curves
9Energy Ventures Analysis, Inc.
SHORT-TERM COAL PRICE FORECASTING
10Energy Ventures Analysis, Inc.
• China partially reverses production cuts
• More coal plant retirements are underway
• Atypically warm winter
• Credit markets reopen for coal companies easing potential coal supply contraints
• Cyclone Debbie
• Trump gets elected
11
Relevant Coal Market Developments
Energy Ventures Analysis, Inc.
Winter Was 2nd Warmest On Record Since 1986
12
(400)
(300)
(200)
(100)
-
100
200
300
1986
1996
2006
2016
* Normal: 30 Year Avg. HDD (1986-2016) Dec-Feb
Weather: HDD deviation from the normal*
2017
2,400
De
via
tio
n
Colder (Dec-Feb)
Warmer (Dec-Feb)
0
5
10
15
20
25
30
35
2016
2017
2012
2002
1998
1999
1992
2000
2006
2013
1995
2005
1991
1997
2007
2008
1987
1990
1989
2009
2015
1993
2004
1986
1996
1988
2003
2011
2001
2010
2014
1994
Weather: Ranked HDD (1986-2017)
2017 – 2nd
warmest
Energy Ventures Analysis, Inc.
Winter Weather Is Key For Coal Burn As High Gas Storage Level Keeps Pricing Pressure In The Near Term
13
(400)
(300)
(200)
(100)
-
100
200
300
1986
1996
2006
2016
* Normal: 30 Year Avg. HDD (1986-2016) Dec-Feb
Weather: HDD deviation from the normal*
2017
2,400
De
via
tio
n
Colder (Dec-Feb)
Warmer (Dec-Feb)
40
60
80
100
120
140
160
180
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
5-Year Coal Range (2012-2015)
Coal Generation (GWH)
2015
2016
2014
2017
0 500 1,000 1,500 2,000 2,500 3,000
Gas Storage level (BCF)First week of MarchYear-2014
Year-2015
Year-2017
Year-2016
$1.00
$2.00
$3.00
$4.00
$5.00
$6.00
$7.00
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Henry Hub Gas price ($/MMBtu)
2014
2015
2016
2017
Energy Ventures Analysis, Inc.
Higher Gas Prices In Late 2016 Lead To An Increase In Coal Burn And Reduction In Stocks
14
0
60
120
180
240
300
360
0
20
40
60
80
100
120
Jan
-10
Jul-
10
Jan
-11
Jul-
11
Jan
-12
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Jan
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Jan
-14
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Jan
-15
Jul-
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Jan
-16
Jul-
16
Jan
-17
Stocks (mmt)
Days of Avg. Burn (left)
3-Month Burn (mmt)
Coal Stockpiles (mmt)Electric Power Sector
Days
84 Days
163 mm tons
Energy Ventures Analysis, Inc.
Coal Gained Market Share As Henry Hub Gas Crossed $3.50/MMBtu In December 2016
15
$1.80
$2.30
$2.80
$3.30
$3.80
20%
22%
24%
26%
28%
30%
32%
34%
36%
38%
40%Ja
n
Feb
Mar
Apr
May
June
July
Aug
Sep
Oct
Nov
Dec
Jan
Feb
Mar
Apr
May
June
July
Aug
Sep
Oct
Nov
Dec
2015 2016
Coal vs Gas share of Generation (%)
Henry Hub
price (right)
36% coal
27% gas
27%-coal
32%-gas
Energy Ventures Analysis, Inc.
Near-Term Coal Plant Retirements
16
7,6356,164
19,480
11,212
7,795
5,838
2,692 0
5,000
10,000
15,000
20,000
25,000
2013 2014 2015 2016 2017 2018 2019
Coal Plant Retirements (MW)2016-2019 based on announcements
2017 Announced retirementsRetirement decision
Primary Coal Plant Unit MW Economic MATS Haze Rule BART State
CAPPYorktown 1-2 326 XROVA 1-2 209 XBrayton Point 1-3 1,100 X
PRBWelsh 2 528 XGRDA 1 490 X
NAPPBL England 2 155 XCayuga 1-2 306 XMercer 1-2 648 XHudson 2 608 X
ILB Paradise 1-2 1,224 X
Rockies
Reid Gardner 4 225 XCherokee 4 352 XNaughton 3 330 XValmont 5 186 X
Other CoalSan Juan 2-3 815 XStanton 1 189 XAll other 105 X
7,795 3,544 1,550 1,018 1,145 538
Energy Ventures Analysis, Inc.
Coal Burn Forecasts By Region Are A Function Of Forecast Coal Generation By Plant
17
407358 322
376 360 334 326
121104
93
109 111110 112
106
8887
95 101100 100
51
39
32
27 2927 29
4
3
3
2 22 2
51
42
36
38 3533 32
91
85
82
84 7978 77
0
200
400
600
800
1,000
2014 2015 2016 2017 2018 2019 2020
PRB ILLB
NAPP CAPP
SAPP Rockies
Lignite/other
Coal Burn (mmt)Electric Power Sector
Energy Ventures Analysis, Inc.
Other markets for coal affect pricing . China curtailed domestic production increasing import demand. As a result, met coal prices jumped. After falling, cyclone Debbie struck and prices jumped again.
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30
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80
20
11
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12
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20
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20
19
20
20
Met Coal
Steam Coal
Coal Exports (mm tons)
$-
$60
$120
$180
$240
$300
$360
Q1
-2
01
1Q
2 -
20
11
Q3
-2
01
1Q
4 -
20
11
Q1
-2
01
2Q
2 -
20
12
Q3
-2
01
2Q
4 -
20
12
Q1
-2
01
3Q
2 -
20
13
Q3
-2
01
3Q
4 -
20
13
Q1
-2
01
4Q
2 -
20
14
Q3
-2
01
4Q
4 -
20
14
Q1
-2
01
5Q
2 -
20
15
Q3
-2
01
5Q
4 -
20
15
Q1
-2
01
6Q
2 -
20
16
Q3
-2
01
6Q
4 -
20
16
Q1
-2
01
7Q
2 -
20
17
Q3
-2
01
7Q
4 -
20
17
Cal
- 2
01
8
Australian Prem. HCC
CIF ARA [6,000kcal/kg NAR]
Benchmark Prices ($/mt)
Forecast
Forecast
Energy Ventures Analysis, Inc.
Summary Of EVA Q1 2017 Short-Term Coal Supply And Demand Forecast
19
US Coal Supply (mmt) 2016 2017 2018 2019 2020
Northern Appalachia 101.9 112.6 115.8 115.4 115.0
Central Appalachia 66.5 74.1 74.6 71.4 71.6
Southern Appalachia 9.1 12.5 12.7 13.1 13.2
Illinois Basin 98.2 117.2 119.3 121.0 122.0
Powder River Basin 311.9 362.3 365.0 346.5 338.9
Rockies 47.1 51.6 51.6 49.4 48.6
Lignite and Other 90.8 94.1 90.0 89.3 88.3
U.S. Production 725.4 824.4 829.1 806.1 797.6
Import, PC, Waste 24.0 19.7 20.5 21.4 22.8
Total Supply 749.5 844.1 849.6 827.5 820.4
-Producer stock & unaccounted (12.0) 1.2 1.2 1.2 1.2
US Coal Demand (mmt) 2016 2017 2018 2019 2020
Electric Burn 676.0 748.7 735.6 704.2 699.1
Stockpile Change (30.6) (37.0) (12.0) - -
Electric Receipts 645.4 711.7 723.6 704.2 699.1
Coke Ovens 16.3 16.9 16.6 16.6 16.5
Comm./Indust. 34.3 32.7 31.9 31.5 31.1
Domestic Receipts 696.0 761.3 772.1 752.3 746.6
Export Metallurgical 40.5 48.0 45.3 42.7 40.0
Export Steam 25.0 33.6 30.9 31.3 32.6
Total Exports 65.5 81.6 76.3 73.9 72.6
Total Demand1 761.5 842.9 848.4 826.2 819.2
1 Includes Import, PC, WC 24.3 22.9 19.7 21.4 22.8
Energy Ventures Analysis, Inc.
Short-Term Coal Price Forecast Is Influenced But Not Determined By Forward Price Curves
20
$25.00
$30.00
$35.00
$40.00
$45.00
$50.00
$55.00
$60.00
$65.00
$70.00
4 1 2 3 4 1 2 3 4 Cal Cal Cal
2015 2016 2017 2018 2019 2020
EVA Forecast
Market Forward
CAPP ($/ton)CSX-Big Sandy: 12,500 1.6#
$20.00
$25.00
$30.00
$35.00
$40.00
$45.00
$50.00
$55.00
$60.00
4 1 2 3 4 1 2 3 4 Cal Cal Cal
2015 2016 2017 2018 2019 2020
EVA Forecast
Market Forward
NAPP ($/ton)Pitt MGA: 13,000 4.5#
$25.00
$27.00
$29.00
$31.00
$33.00
$35.00
$37.00
$39.00
$41.00
$43.00
4 1 2 3 4 1 2 3 4 Cal Cal Cal
2015 2016 2017 2018 2019 2020
EVA Forecast
Market Forward
ILB ($/ton)Barge-WKY: 11,500 5.2#
$8.00
$9.00
$10.00
$11.00
$12.00
$13.00
$14.00
4 1 2 3 4 1 2 3 4 Cal Cal Cal
2015 2016 2017 2018 2019 2020
EVA Forecast
Market Forward
PRB ($/ton)BN/UP-Gillette: 8,800 0.8#
MORE COAL PLANT RETIREMENTS ARE UNDERWAY
Energy Ventures Analysis, Inc.
• Trump rescinded Stream Protection Rule (Feb 16)
• Trump nominee Scott Pruitt confirmed as EPA Administrator (Feb 17)
• Broad “Energy Independence Executive Order” with extra focus on Clean Power Plan (March 28)
• DOJ Motion to Hold ELG Compliance in Abeyance (March 28)
• Withdrawal of Federal Plan for CPP Compliance published in Federal Register (April 3)
• EPA motion for continuance of oral arguments to give the appropriate officials adequate time to fully review the 2015 ozone NAAQS. (April 7)
• Administrative Stay by the EPA of the Effluent Limitation Guidelines (April 12)
• Department of Energy initiated 60 day study on impact of renewable energy mandates and subsidies on baseload generation. (April 14)
21
Trump Administration Actions to Date
Energy Ventures Analysis, Inc.
LONG-TERM COAL PRICE FORECASTING
22Energy Ventures Analysis, Inc.
Long-Term Integrated Price Forecasting for the Power Sector
23Energy Ventures Analysis, Inc.
Key Long-Term Assumptions For Coal Price Forecasting
24Energy Ventures Analysis, Inc.
Demand
• Electricity demand growth• Installed capacity`
• Renewables• Retirements (coal and nuclear
of particular interest)• Additions
• Regulatory requirements• Other domestic demand (industrial
and met)• Export
• Type (Met and Thermal)• Export Terminal Capacity• Relative strength of the U.S.
dollar• Gas prices
• Supply
• Production capacity
• Production costs
• Mining regulations
• Reserve profiles
• Health of the coal industry
Key Long-Term Assumptions For Natural Gas Price Forecasting
25Energy Ventures Analysis, Inc.
Demand
• Residential/Commercial
• Existing industrial
• Power
• LNG exports
• Pipeline exports to Mexico
• New industrial facilities
• Fleet conversions
• Supply
• Shale expansion and technology
• Decline of off-shore production
• Decline of conventional production
• Infrastructure status and improvements
Closing Thoughts On Long-Term Forecasts
26Energy Ventures Analysis, Inc.
• Coal vs Gas Price Forecasts • Coal is purchased typically through staggered multi-year contracts which
mutes coal price volatility actually paid by generators• Gas is purchased typically day ahead or same day which exposes
generators to volatile pricing absent hedging. Gas price forecasts do not include hedging costs.
• These factors are hard to consider but significant to dispatch analysis which determines plant performance
• IRP analyses do not appear to reflect these different profiles
• Stochastic versus Deterministic Modeling• Stochastic modeling addresses some of the uncertainty in price forecasts
through probability distributions of possible outcomes subject to constraints defined above
• Stochastic modeling does not replace the need for “designed scenario analysis” to capture either binary outcomes or specific scenarios that merit consideration
QUESTIONS?
27Energy Ventures Analysis, Inc.
Emily Medine
emedine@evainc.com
412-421-2390