Cues from the commodity markets, more of the same? CASPR relief rally overdone?

Based on recent price movements (1), low hedging levels for 2013 and analyst forecasts, it is likely natural gas prices will be lower for the next few years than they were in 2011.  In comparison, I estimate oil price forecasts are flat to positive and coal price forecasts are negative.

If forward prices and analyst forecasts for 2012 hold true, I believe it will be another bad year for the independent power producers, another good year for liquids MLP’s and another bad year for the coal miners.  On a side-note, I believe the the delay in the implementation of CASPR is temporary and the EPA will succeed in implementing CASPR after some modifications.

In my opinion, it makes sense to remain long regulated utilities and short some coal names.

(1) Jan 2013 contract NG prices have declined approximately 30% over the past year.  Producers have only hedged 13% of their total production for 2013 and are unlikely to do so with 2013 calendar strip prices below $4.  This lack of hedging should translate into lower capital expenditure.

Disclaimer: I am long some regulated utilities.


4 thoughts on “Cues from the commodity markets, more of the same? CASPR relief rally overdone?

  1. How do MLP’s benefit from flat oil prices and lower natural gas prices? Also, why are lower natural gas prices bad for the independent power producers?

  2. So how have energy commodity prices performed from the beginning of the year:
    Natty gas: down 18 %, Brent: up 18%, Global Coal RB Index: down 1.4%.
    Source: FT Commodities update, article–oil leaps to highest level since 2008.

  3. Some other articles on regarding pressure on coal contracts for 2012-13 and the abandoned auction of Australian coal miner New Hope. FT estimates the 2012-13 contracts will be 10% lower than the record amounts signed last year but I believe the risks are skewed to the downside.

  4. The most recent edition of the Economist has an article titled, ‘Regulating carbon emissions, a blow to coal’. The Obama administration has proposed a 1000 pounds of CO2 per MWH of power produced limit, which would effectively bar the construction of new coal-fired generation except for CCS. Given how low natural gas prices are, not sure if this proposal changes anything; new coal plants are simply uneconomic for the foreseeable future.

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