European Energy Trades Move to Exchanges to Shun Risk

European energy traders are increasingly using regional electricity and natural-gas exchanges to reduce their risk amid a global credit freeze and unstable financial markets, delegates at a power conference in Geneva said.

``The last few months we've seen a direct response with traders wanting to cut their counterparty risk,'' said Paul van Son, chairman of the European Federation of Energy Traders. The move away from so-called over-the-counter markets ``could provide a durable shift,'' Van Son, who is also an Essent NV managing director, said yesterday in an interview at the Emart conference.

Traders are opting for exchanges, where settlement is guaranteed by a clearing house. While over-the-counter, or OTC, trading remains dominant, the share of exchange trading has probably risen to 30 percent of the market, with OTC taking the remaining 70 percent, Van Son said.

Last year, exchanges had about 25 percent of the trade in Europe's eight biggest power markets, with bilateral trading via brokers or directly between participants taking the remaining 75 percent, according to consultant Prospex Research Ltd. in London.

The European Federation of Energy Traders, or EFET, brings together more than 90 trading companies from 23 European nations.

``Short-term we'll see a change'' toward the exchanges, Alan Svoboda, director of sales at CEZ AS, central Europe's biggest power company, said in an interview in Geneva. ``It's inherently safer.''

OTC Volumes to Fall

Spectron Group Ltd., an OTC broker, said energy trading volumes may fall next year.

``There will be some decrease in volume,'' Managing Director for Business Development John Evans said today in an interview at the conference. ``We were looking for future growth in the energy market from banks and hedge funds; now we don't know what's going to happen next year.'' October volumes have ``kept up,'' he added.

Other commodity markets are shunning bilateral accords as well. In oil markets, the credit squeeze has reduced the volume of OTC trading ``dramatically'' as banks avoid derivatives, Vitol Group's Chief Executive Officer Ian Taylor said on Oct. 28 at a London conference.

The OTC markets, where brokers such as ICAP Plc and GFI Group Inc. match buyers and sellers, will probably eventually win back trading because their fees tend to be lower than on the exchanges, at least for the bigger traders, CEZ's Svoboda said. Utilities and trading companies also prefer the flexibility of transacting directly with counterparties, where they have more negotiating power than on exchanges, EFET's Van Son said.

Enron's Collapse

Still, electricity exchanges have gained market share following previous declines in OTC trading, such as the 2001 collapse of Enron Corp., which was the world's biggest energy trader at the time, according to the chief executive of APX BV, the Dutch energy exchange company.

``We could have a boost on the exchanges for some time; at least a sizable chunk of that will stay, that is what I expect,'' APX's Bert den Ouden said yesterday in an interview in Geneva. ``This is the experience we've had in the past.''

For APX, which offers prompt and near-term power and gas trading in the Netherlands, U.K. and Belgium, trading volumes are increasing and were rising even before the financial-market turmoil of the past two months.

``We're also seeing more interest from companies to become members and we're seeing an acceleration in memberships,'' Den Ouden said. APX aims to complete the takeover of Amsterdam-based European Energy Derivatives Exchange NV by the end of this year, he said. Endex offers futures contracts in Dutch and Belgian power and gas. Germany is the continent's biggest power market.

Casualties from the global credit crisis include U.S. investment bank Lehman Brothers Holdings Inc., which filed for bankruptcy last month, and Fortis, which was rescued by Belgium, the Netherlands and Luxembourg.

``We don't expect any collapses of any energy companies,'' Van Son said.

Source: Bloomberg 30-10-2008

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Coal efficiency set to get boost

The authorities aim to boost the efficient use of coal supplies by raising the average recovery rate of the resource in the country from about 30 percent currently to at least 50 percent by 2010, a senior government official has said.

The country's top economic planning agency, the National Development and Reform Commission (NDRC), had in 2006 set the goal of a 40 percent coal recovery rate by the end of the decade, Zhao Xiaoping, deputy director of the National Energy Administration (NEA) under the NDRC, said to participants of the 2009 China Industrial Development Forum on Saturday.

China is the world's largest coal producer and consumer. Its dependence on coal continues amid the occurrence of coal mine accidents and its use of the resource is said to be inefficient compared with those of other countries - the coal recovery rate in developed countries including the United States, Australia, Germany and Canada is reportedly about 80 percent.

China uses 3.3 tons of raw material to produce 1 ton of coal, while the US is said to use 1.25 tons.

The country's latest move to boost coal efficiency is expected to save 1.3 tons of resources for every ton of coal produced.

The authorities also aim to reduce energy consumption per unit of GDP by 20 percent, as well as cutting the emission of major pollutants by 10 percent, in the next five years.

As part of its efforts to achieve these goals, the country aims to consolidate the coal industry by building five large mines with a capacity of 100 million tons each, as well as shut polluting and inefficient small coal pits, Zhao said.

"Energy conservation and the ability to raise energy efficiency is a top priority in our energy development strategy," Zhao said.

According to a 2007 energy report issued by the Chinese Academy of Social Sciences, the country's State-owned coal mines have a mining recovery rate of nearly 44 percent, compared with a low of 10 percent seen in a number of small and private coal mines.

The low rate is mostly caused by backward and inefficient mining techniques, the academy reported. The country relies on coal to generate nearly 80 percent of its electricity, NDRC figures showed.

China Daily - 3-Nov-08

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China Sep coal output slows on economic downturn

China's coal output slowed down in September after power consumption weakened for five months in a row on economic downturn.

Raw coal dropped to 229 million tonnes in September from August's 232 million tonnes, show data from the State Administration of Work Safety. Total coal output increased 11.43 percent from a year ago to 1.99 billion tonnes in the first nine months.

The output growth rate was down from 11.46 percent for the year ending August, which, according to analysts, is mainly attributed to closure of small coal mines.

Thermal power consumption declined by 3.4 percent to five-month low in September. Electricity used by the textile industry, hard-hit by the ailing exports, was only 1.9 percent more than the same period last year. By contrast, the power consumption growth rate advanced 11.20 percent in January-November of last year from a year ago, according to Wind Financial Data.

Power coal output, which took up 40 percent of the total, declined 7.64 million tonnes, or 12 percent in September from a month ago.

Meanwhile, overstock has been plaguing the northern Qinhuangdao Port, China's largest loading port for coal, as coal stock reached 8.9 million tonnes on Sep 21.

Coal stock in the port would keep above 8 million tonnes in the short term, predicted Pu Hongjiu, vice chairman of China National Coal Association.

China's GDP slowed to 9 percent in the third quarter as the spreading credit crisis sapped foreign demand for Chinese goods. GDP for the first three quarters slowed to 9.9 percent, the first single-digit expansion since 2002.

(Source:en.sxcoal.com)

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Newcastle Coal Price Falls to 6-Month Low, Drops Below Contract

Power station coal prices at Australia's Newcastle port, a benchmark for Asia, fell for a seventh week, dropping 6.1 percent to trade below this year's contract price as Chinese demand slows and oil prices slump.

The weekly index for power-station coal prices at the New South Wales port dropped $7.81 to $121.17 a metric ton in the week ended Oct. 3, according to the globalCOAL NEWC Index. The spot price is now trading below the contract price of $125 a ton for the year that started April 1 for first time since the week ended April 4.

Oil declined 12 percent last week as reports showed U.S. fuel demand in the previous four weeks was the lowest in almost seven years. Demand from China, the world's largest consumer of thermal coal, is slowing as output from domestic mines increases, said Mark Pervan, senior commodity strategist at Australia & New Zealand Banking Group Ltd.

``Oil prices are really hitting the skids now and that is going to continue to drag energy prices lower,'' Pervan said today by phone from Melbourne. ``China is back on its feet production-wise and at the same stage we are starting to see some slower demand conditions.''

The weekly globalCOAL index has slumped 38 percent since trading at a record $194.79 in the week ended July 4. The monthly index fell 10 percent to $144.82 a ton in September, from $160.90 the previous month.

Commodity prices measured by the Reuters/Jefferies CRB Index of 19 raw materials tumbled 10 percent last week, the most since as least 1956.

``The fact you are seeing such heavy corrections in other commodity markets it's no surprise that we are seeing spot markets dip below last year's contract,'' Pervan said. The price may head toward $100 a ton as demand slows sharply, he said.

Xstrata Plc, the world's largest exporter of power-station coal, BHP Billiton Ltd. and Rio Tinto Group are among mining companies that ship coal through Newcastle.

Thermal coal producers won a 125 percent increase in annual contract prices this year on supply constraints and increased Chinese demand.

Bloomberg - 6-Oct-08

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