Fuel for Thought – Aug 26th

26 Aug, 2011

Vattenfall selling non-core assets: Vattenfall joins this list of large European utilities who are scaling back capital expenditure, selling assets and renewing their focus on core activities. After announcing the sale of Nuon’s Belgium assets last month, Vattenfall is now offloading their Polish heat and power and distribution assets.  These asset sales are part of an effort to improve Vattenfall’s return on equity by concentrating on their core asset base in Sweden, Germany and the Netherlands. The capital constraints currently facing large utilities are not going to make the infrastructure investment challenge across European energy markets any easier.

The evolution of Japanese LNG demand: Japan has been a prominent driver of global LNG prices since the Fukushima disaster. LNG demand has been boosted by a requirement for alternative generation after the closure of 12 GW of nuclear capacity and by increased cooling load from hot weather over the summer. As the fallout from these effects begins to settle, the focus of the LNG market is likely to return to the robustness of economic growth and policy support for new gas plant in developing Asian countries.

RWE faces new obstacle for Dutch coal plant: Despite construction being well underway, RWE has had construction permits anulled for its 1600 MW Eemshaven coal plant. The economics of new coal plant has improved this year as the carbon price has fallen and power prices have been supported by a tightening global gas market in the wake of the Fukushima disaster. But the Eemshaven decision highlights the local planning risks associated with new coal plant, particularly in the Netherlands and Germany. Owners of the wave of new gas plants under construction in the Netherlands may be somewhat relieved by a delay to Eemshaven, but they still face the prospect of anaemic Dutch spark spreads.

The Federal Reserve and energy prices: All eyes will shift to a Wyoming ski resort this afternoon to hear the Chairman of the US Federal Reserve speak on monetary policy. Bernanke used the Jackson Hole speech in August 2010 to introduce a second round of quantitative easing (QE2) which was a key driver of the rally in commodity prices in the second half of 2010. The aggressive selloff in asset prices this month has lead to an increase in expectations that the Fed will announce a third round of quantitative easing in Jackson Hole. But there is a strong case against any further monetary stimulus of this nature, at least in the short term.

Picture of the week:

The Kaz zero emissions electric stretch limo concept vehicle, the brainchild of Keio University in Japan. While yet to go into production, the Kaz gives some hope to large combustion engine drivers that the electric vehicle industry may cater to their tastes. The zero emissions electric Hummer is still at a pre-conceptual stage.