Oil falls as Italy elections hold markets hostage

No Joke -- Comedian Holds Global Market Hostage!

Overall, Reuters reported power companies have announced plans to shut or convert about 40,000 MW of smaller, older coal-fired plants over the next few years as cheap natural gas prices and strict environmental rules have made coal the more expensive option in some areas. Eventually, the switch away from coal may shut 60,000 MW to 100,000 MW of power generation across the country, according to industry estimates. Low natural gas prices have depressed power prices to at least 10-year lows in several regions, making it uneconomic for generators to install new environmental controls on their oldest and smallest coal plants. Those controls are needed to keep the units compliant with the latest flurry of federal and state environmental rules. There are about 316 gigawatts of coal-fired power plants in the United States — about 30% of the nation's 1,039-GW generation fleet.

Last week Reuters reported, "A free trade agreement between the United States and Europe could open new markets for domestic natural gas, but without access to big growth Asian markets there still may not be enough demand to launch the export revolution that the industry desires. Obama, in his State of the Union speech, said the United States wants to foster closer trade relations with Europe, sparking speculation that an FTA could create an easy path to shipping liquefied natural gas (LNG) to the continent. Morgan Stanley energy analysts this week said an FTA could quicken the timeline for LNG projects targeting Europe and even increase volumes heading there. But other experts say few, if any, of the more than a dozen planned U.S. projects will go ahead before they receive approval to export gas to major buyers in Asia such as China and India, which do not have FTAs with the United States.

“Global LNG operators need access to 100% of the markets. Restricting the trade would reduce the value of the U.S. supply," said Lafayette Herring, an LNG analyst at Waterborne Energy consultants in Houston.

U.S. LNG exports are tightly restricted and projects must be approved by Washington. Deals to ship to FTA countries are typically rubber-stamped; only one project has been approved to export to a non-FTA country, amid concerns about driving domestic prices too high. FTA nations that import LNG represent 20% of global demand, according to Waterborne, most of which is made up by the world's No. 2 LNG importer, South Korea. Adding Europe to that list would bring it up to 50%. Financing of export projects, which cost billions of dollars to build, hangs on companies securing supply deals. Such deals are far more likely if all the world's importers can be approached. Without deals, it becomes very difficult to convince investors that the project will make money. At stake is the fate of proposed projects run by Royal Dutch Shell, Exxon Mobil, Sempra Energy  and other smaller ventures. Some experts said that projects hoping to export from the United States will already be under construction by the time any trade deal with Europe is formalized.

About the Author
Phil Flynn

Senior energy analyst at The PRICE Futures Group and a Fox Business Network contributor. He is one of the world's leading market analysts, providing individual investors, professional traders, and institutions with up-to-the-minute investment and risk management insight into global petroleum, gasoline, and energy markets. His precise and timely forecasts have come to be in great demand by industry and media worldwide and his impressive career goes back almost three decades, gaining attention with his market calls and energetic personality as writer of The Energy Report. You can contact Phil by phone at (888) 264-5665 or by email at pflynn@pricegroup.com. Learn even more on our website at www.pricegroup.com.

 

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