Fuel for Thought – 7th Oct

07 Oct, 2011

Swiss nuclear vote: The Swiss have joined Germany in turning away from nuclear capacity, focusing on renewable energy as an alternative source of generation.  While this sounds like an attractive logic, it adds to the difficulty of the challenge Europe faces in decarbonising its power sector.  Switzerland will need to replace at least a portion of this nuclear capacity with domestic thermal generation or imports of thermal output from their neighbours.

New Dutch renewable deal: Many government’s in Europe are relying heavily on rapid development of offshore wind to meet their 2020 renewable targets.  The recent ‘green deal’ introduced in the Netherlands encourages development of biomass generation but does little to help offshore wind development.  Increasingly across Europe there appears to be hesitation, both at a government and a private investor level, in committing to the large scale development of offshore wind required.

A link between the UK and Norway: A consortium known as NorthConnect is planning a 1.4GW interconnector between Scotland and Norway.  If the link is built it will provide much needed flexibility to support the UK’s increasing volumes of wind capacity.  It will also have an interesting impact on UK gas plant margins, with the pricing of Norwegian hydro based interconnector flows likely to be determined by UK gas plant as the alternative source of generation flexibility.

Crude oil curve backwardation: Fears over the impact of an economic slowdown on demand are driving conditions of steep backwardation in the crude oil futures market.  Goldman Sachs has published some interesting analysis of why curve backwardation may fuel market tightness.  While both the oil and LNG market may be susceptible to a price recovery in the short term, it is hard to build a case around a sustainable rally if the US and Eurozone return to recession and Chinese growth continues to slowdown.

Picture of the week:

The Daewoo Shipbuilding facility in South Korea. Daewoo is the world’s largest LNG shipbuilder but suffered a sharp contraction in new ship orders between 2008 and 2010. The outlook has improved somewhat in 2011 as LNG freight rates have increased dramatically as the LNG market has tightened since the Fukushima earthquake.