The drama continues and the geo-political risk premium rises as al-Qaeda terrorists yesterday ambushed a bus, took up to 41 hostages including several Americans and took control of a BP PLC natural gas field. Overnight word of hostages escaping is a good sign but the ramifications from terror incident are far from over. The FT reports that a group calling itself the Masked Brigade claimed responsibility for the act and is being led by Moktar Belmoktar, an Algerian former al-Qaeda leader and smuggler dubbed “The Uncatchable” by French intelligence. The terror act has raised concerns that al-Qaeda would start to make good on their threat to attack energy facilities around the globe and perhaps use these facilities as weapons of terror.
Now because the plant was a natural gas field and not an oil facility the petroleum markets seemed more moved by inventory data than by the news. The oil market is already pumped up with risk premium and so this new act, while unexpected, had been priced in as this has long been a possible scenario. Still Algeria is a major supplier of gas to Europe and with very cold weather in Europe this is the market that will be most impacted in the short term. In the longer term it raises concerns that other energy facilities will become the target of future al-Qaeda attacks.
Oil supply surprisingly fell yesterday as a drop in Saudi Production and a shutdown of the Seaway Pipeline for expansion took a toll on U.S. imports. U.S. crude oil imports averaged more than 8.0 million barrels per day last week down by 312 thousand barrels per day from the previous week. That led to a one million barrel crude supply drop. That was a surprise and was the main reason that oil stayed strong. Over the last four weeks, crude oil imports have averaged about 7.9 million barrels per day, just under 1.2 million barrels per day below the same four-week period last year. Total motor gasoline imports (including both finished gasoline and gasoline blending components) last week averaged 375 thousand barrels per day. Distillate fuel imports averaged 186 thousand barrels per day last week.
The good news was that distillate fuel inventories increased by 1.7 million barrels last week. This is the part of the complex that is of the most concern because supply according to the Energy Information Administration is at the lower limit of the average range for this time of year. The EIA in a must read says that electric power companies add physical capacity to their fleets in two primary ways: Building new generators or buying existing generators from another company. The purchase and sale of power plants is a key business activity in the electric power sector. In 2012, over 107 gigawatts (GW) of operating capacity were bought and sold in the U.S. electric power market — the majority of which came from three large mergers or acquisitions — compared to about 26 GW of capacity additions from newly constructed plants (both actual and planned as reported to EIA).
The 2012 data include capacity from three large electric company mergers: Duke Energy and Progress Energy, which closed on July 2, 2012; the Exelon Corporation and the Constellation Energy Group, which closed on March 12, 2012; and the acquisition of GenOn Energy by NRG Energy, which closed on December 14, 2012.
An electric power company chooses to buy or sell a generator for a number of reasons including diversifying fuel mix, complying with regulations, taking advantage of distressed assets in the marketplace, or to free operating capital. Natural gas and renewable units comprise a majority of the generating capacity bought or sold since 2005.
Source: U.S. Energy Information Administration based on SNL Energy. Note: Annual totals reflect operating capacity of generators for which the purchase and sale was completed within the calendar year.
Power plant acquisitions include the purchase of an entire plant site, a single generator, a share of a generator, or even an entire company. A single generator can be owned by multiple entities. For example, the Palo Verde Nuclear Generating Station is fractionally owned by: American Public Service Company (29.1%), Salt River Project (17.5%), El Paso Electric Co. (15.8%), Southern California Edison (15.8%), Public Service Co. of New Mexico (10.2%), Southern California Public Power Authority (5.9%), and Los Angeles Department of Water & Power (5.7%).
Companies that purchase electric generating capacity include regulated electric utilities, independent power producers, industrial power users, municipal power companies, investment banks and private equity investors. Transactions involving regulated electric utilities are often subject to approval from state public utility commissions. The purchase or sale of an investor-owned asset may or may not be subject to approval from state commissions or federal entities like the Federal Energy Regulatory Commission, Security and Exchange Commission or the Federal Trade Commission.