German power: €50.46/MWh, up 1.86%
Coal: €98.03/t, up 0.71%
Natural gas: GB41.35p/therm, up 2.64%
EUAs for December 2010 delivery: €14.02/t, up 1.89%
CERs for December 2010 delivery: €11.82/t, up 1.55%
Brent crude oil futures for front-month 2010 delivery: US$77.16/bbl, down 0.6% as of GMT 09:00, July 30
WTI crude oil futures for front-month 2010 delivery: US$77.90/bbl, down 0.6%, as of GMT 09:00, July 30

Latest buzz

NYMEX crude for September delivery rose by 1.8% to settle at US$78.36/bbl yesterday, after hitting an intraday high of US$78.89/bbl, while ICE Brent crude climbed US$1.53 to finish the day at US$77.59/bbl. In both cases, the main driver was the strength of the Euro, which reached an 11-week high at over US$1.31 in early trading, on the back of more positive economic data from the Eurozone and a less than impressive US government report on unemployment.

Trading today will be overshadowed by the release of 2Q10 real GDP data for the US, which according to a Dow Jones survey, is estimated at 2.5%. Should it be any lower then crude is expected to come under significant pressure. Early Asian trading has already pushed both contracts lower due to reports that the Japanese unemployment rate has risen, while deflation continues and industrial output has dropped. A Bloomberg news survey has suggested that OPEC oil output has risen this month by 0.3% to average 29.4mbpd, 1.98mbpd above the cartel’s target. The amount of crude held in floating storage on board VLCCs has dropped by 73% over the course of this year to 11mbbl, as of July 29, according to ICAP Shipping International Ltd, as the shift towards backwardation has eliminated much of the incentive to hold oil in inventory. ExxonMobil, Royal Dutch Shell and oil service firm National Oilwell Varco have all reported strong earnings, despite the latter also reporting a 2.3% decline in revenue.

Some positive news has come from Germany, where unemployment has fallen for a 13^th successive month, to 3.21m, the lowest level seen since November 2008, according to the Federal Labor Agency.

According to the EIA, US natural gas production in May was essentially unchanged from the levels reported in April, totalling 64.92bnft³pd. Front month NYMEX natural gas traded yesterday in the US$4.79/mBtu range, before settling at US$4.83/mBtu (up 2.3%), thanks to the news that gas in storage rose by only 28bnft³ to 2919bnft³, down 3.1% on year, but up 8.9% above the five year average. The injection into storage was significantly below historical injections for the week.

Anglo American has reported that its thermal coal production for the first six months in South Africa for export had fallen by 6% as a result of heavy rain and geological issues. In contrast output at the Cerrejón mine in Colombia was unchanged from 2009 and its Australian thermal coal production has risen by 5%.

NTPC Ltd, the state-owned Indian power company is looking to import a record 14.5Mt of thermal coal for the year ending March 2012. The company will be importing the fuel directly for the first time, as opposed to previously obtaining imported coal through state-owned companies such as MMTC Ltd and the State Trading Corp of India. NTPC currently operates 15 coal-fired power plants and is planning to double its capacity to 75GW by 2017.

EUAs have been pushed up to above €14/t, on the back of a uniformly positive energy complex and a rise in the EU economic sentiment indicators to its highest level for two years. The index has been boosted from positive results from BASF, Siemens and Vattenfall. CERs also advanced but less than EUAs, causing the DEC10 CER-EUA spread to finish the day at -€2.20 and the DEC12 spread to end at -€3.27.

German power: €49.54/MWh, up 0.47%
Coal: €97.19/t, down 0.11%
Natural gas: GB40.28p/therm, up 1.47%
EUAs for December 2010 delivery: €13.76/t, up 0.29%
CERs for December 2010 delivery: €11.64/t, up 0.17%
Brent crude oil futures for front-month 2010 delivery: US$76.30/bbl, up 0.3% as of GMT 09:15, July 29
WTI crude oil futures for front-month 2010 delivery: US$77.24/bbl, up 0.4%, as of GMT 09:15, July 29

Latest buzz

Oil prices have rebounded after yesterday’s precipitous decline, sparked by a surprise 7.3mbbl build in US crude inventories for the previous week, reported by the EIA. This was partly driven by a 1.18mbpd increase in imports to 11.2mbpd, the highest level seen since the week ending August 25, 2006.

The news caused NYMEX crude for September delivery to fall to a one week low, settling down US¢51 to US$76.99/bbl. Today has seen a return to above US$77/bbl, as a result of a fall in the value in the dollar against the Euro, which is enjoying positive momentum as a result of a strong performance from its banking sector in stress tests reported on July 21. There remain concerns regarding the future outlook for oil demand, given that the Federal Reserve in its latest Beige Book Report said that US economic activity had risen only modestly in June. Further concerns were raised when an unexpected 1% drop in US durable goods orders and was reported on July 28. The Conference Board also reported that US consumer confidence has fallen to its lowest level in five months in July.

NYMEX natural gas for August delivery rose by 2.91% to settle at US$4.811/mBtu, while gas for September delivery rose 3.36% to US4.802/mBtu. The main impetus behind the rise in prices remains the high temperatures across most of the major gas-consuming regions, but support also came from traders buying back previously sold contracts in order to cover their positions ahead of the August contract expiration. In addition, the fact that the Atlantic storm season is expected to last through to September, is making it difficult to justify a sale off, despite its lack of impact to date.

Prompt coal cargo prices for European delivery and Richards Bay FOB dropped by around US¢50/t yesterday, with the latter trading at US$89.50/t, despite the news that heavy seasonal rains have significantly impacted on Indonesian coal output in South Kalimantan and affected ship loadings. If the situation continues for another week, it could potentially lead to delays or producers declaring force majeure. Some sellers of prompt South African cargoes are holding back to see how this state of affairs develops, while ample supplies at Australian ports are thought to be one of the main reasons why prices have yet to rise.

Over in China, the coal industry has been doing remarkably well. According to the National Development and Reform Commission, the sector generated a total profit of CNY122.5bn in the first five months of this year, up 80.9% YoY. Domestic coal production rose to 1.57bnt in the first half of 2010, up 20.1%, while imports rose to 81Mt over the same period up 70.6% YoY. In contrast, exports amounted to just 10Mt, down 13% YoY. Coal prices have risen since they hit a low of CNY680/t in late March, to around CNY765/t and the commission is expecting prices to be relatively stable in the second half of this year, partly due to initiatives designed to reduce pollution and emissions.

European carbon prices have risen, thanks to a mildly supportive energy complex with oil prices and the 2011 German baseload contract being the main factors. CERs recorded smaller gains, causing the DEC10 CER-EUA spread to widen to -€2.12/t and the DEC12 spread widening to -€3.20/t. Interestingly, four analysts polled by the Reuters news agency viewed current EUA prices as a reason to buy, given expectations of an European economic recovery and a tighter market for emissions allowances in Phase III of the EU ETS which begins in 2013.

German power: €49.31/MWh, down 0.06%
Coal: €97.34/t, down 0.15%
Natural gas: GB39.70p/therm, down 3.41%
EUAs for December 2010 delivery: €13.72/t, up 1.40%
CERs for December 2010 delivery: €11.62/t, up 0.43%
Brent crude oil futures for front-month 2010 delivery: US$76.28/bbl, up 0.2% as of GMT 08:45, July 28
WTI crude oil futures for front-month 2010 delivery: US$77.55/bbl, down 0.0%, as of GMT 08:45, July 28

Latest buzz

In stark contrast to Monday’s veritable buffet of positive economic news, oil prices were dragged down on Tuesday, thanks to a number of bearish signals. These included a 3.9 percentage point fall in the Conference Board’s Consumer Confidence to 50.4, from the 54.3 seen in June and a report from the Richmond Federal Reserve which indicated that there had been a drop in manufacturing activity. These outweighed the release of more strong company earnings data and a rise in US house prices. Adding to bearish sentiment was the news that the American Petroleum Institute has reported a surprise 3.1mbbl jump in US crude inventories for last week, compared to the 2.3mbbl draw down predicted in a Platts survey. As a consequence, US NYMEX crude settled yesterday at US$77.50/bbl, down US$1.48/bbl from the previous session.

Yesterday saw natural gas on the NYMEX rise for the second day in a row, as above average temperatures continued to boost demand for air conditioning and electricity. Natural gas for August delivery rose by 1.4% to settle at US$4.676/mBtu, while gas for September delivery rose by US¢6.3 to US$4.646. Today marks the expiry of the August contract. The National Weather Service has predicted that the hot weather across much of the US Midwest and East will remain over the August 1 to August 5 period.

Genscape has released its weekly status report on US coal inventories at power plants. Stockpiles have fallen by 1.6% and are currently down 16% on year. As a result, US power utilities have 55 days of coal burn on hand, as of July 26, two less than that seen in the previous week. Total inventories amounted to 152.5Mst, down from the 155.2Mst seen on July 19. Once again, the draw down in inventories has been attributed to the economic recovery and in the case of the weekly decline, the hot weather seen across much of the country.

Over in Europe, the carbon markets appear to have largely ignored fundamentals. Despite a slight drop in German Power and a large fall in the value of UK natural gas, DEC10 EUAs came off the lowest level for four months (€13.34/t), to settle at €13.72/t, up 1.40% on the previous session. Some support came from sentiment that the contract had been oversold as well as the news that the UK government will be putting pressure on the European Commission to increase the amount of auctioning taking place under the EU ETS. CER prices failed to continue their strong performance against EUAs, partly as a result of the shelving of plans to introduce cap and trade at the Federal level in the US. The DEC10 CER-EUA spread widened to -€2.10.

According to the WCI, five of its members (California, New Mexico, Quebec, Ontario and British Columbia) already have a system or are developing one and are responsible for around 70% of the carbon emissions in the region. The WCI is expecting to launch its regional scheme in January 2012, which would help reduce the costs involved in reducing carbon emissions as it would allow industrial emitters to buy and sell carbon allowances from other states, creating greater flexibility and increasing the potential number of emissions reduction projects. The aim is to reduce greenhouse gas emissions by 15 from 2005 levels by 2020. Under the new proposals, emitters will be able to surrender allowances at three year intervals, giving them additional flexibility as to when they reduce their emissions. It will also create an allowance reserve, if prices rise to unexpected levels.

However, it is by no means certain as to whether individual members will be capable of successfully passing cap and trade legislation. For example, AB 32, the Californian 2006 Global Warming Solutions Act is being delayed by a measure chiefly supported by two Texas oil companies, while Meg Whitman, the GOP’s gubernational candidate has said that if elected, she would delay the Act by a year.

In addition, Arizona, Utah, Washington, Oregon, Montana and Manitoba have decided to delay their participation, due to fears that cap and trade could lead to higher energy costs.  Only British Columbia, Ontario, Quebec, California and New Mexico are proceeding with plans to implement carbon trading by 2012. This is despite a recent economic analysis performed by the WCI that indicates that the scheme would “support robust economic growth and deliver net cost savings – even when the assumptions resulted in different carbon allowance prices.” The WCI estimates that the value of carbon allowances issued under its remit will be US$33/t by 2020.

German power: €49.34/MWh, down 0.62%
Coal: €97.47/t, down 0.49%
Natural gas: GB41.10p/therm, down 2.02%
EUAs for December 2010 delivery: €13.53/t, down 3.43%
CERs for December 2010 delivery: €11.57/t, down 3.10%
Brent crude oil futures for front-month 2010 delivery: US$77.37/bbl, down 0.2% as of GMT 09:15, July 27
WTI crude oil futures for front-month 2010 delivery: US$78.90/bbl, down 0.2%, as of GMT 09:15, July 27

Latest buzz

NYMEX crude for September delivery settled yesterday at US$78.98/bbl, unchanged from the previous close. Support has come from expectations that US crude inventories may have fallen to a four year low, due to a combination of lower import volumes and lost production resulting from Tropical Storm Bonnie. A Bloomberg poll expects the EIA to report a 1.75mbbl draw down in crude inventories at 10:30 EDT tomorrow, which would put crude stockpiles at 351.75mbbl for the week ended July 23. According to the US Bureau of Ocean Energy Management, Regulation and Enforcement, 52% of US Gulf oil production capacity was shut in. The Gulf of Mexico is responsible for around 31% of US oil output.

Additional support has come from the stock markets, with the Dow Jones industrial average rising by 1% yesterday and increasing by 4% in the last three trading sessions. In addition, the Commerce department reported that new US home sales rose by 330,000 in June, higher than the 310,000 expected by analysts. Further support came from a good earnings performance from FedEx and sentiment may be boosted from the news of tighter Eurozone sanctions against Iran’s oil industry. One factor that is likely to be largely ignored by the markets is Venezuelan president Hugo Chavez’s threat of stopping oil supplies to America in the event of aggression from Colombia or any other US allies. Given that the US is by far the largest customer for Venezuelan oil and that such a move would ultimately be self-defeating, it can only be interpreted as empty sabre-rattling.

Views from analysts regarding the current direction of the market are decidedly mixed. Ritterbusch and Associates have commented that: “Oil fundamentals are looking more bearish with each successive EIA report,” while Goldman Sachs have argued that crude prices are significantly below the level warranted by fundamentals.

In addition to the EIA’s “This Week in Petroleum,” traders will be looking towards the release of the US July Consumer Confidence index later today and an advance report on durable goods tomorrow.

Over in Australia, queues at the port of Newcastle, rose by one to 12, up from the 11 seen a week earlier. Coal shipments rose by 1.2% to 2.18Mt, according to Newcastle Port Corp. Its report also stated that the wait time had fallen to an average of 7.46 days down from the 9.84 seen last week. Thermal coal prices at the port have fallen by 1.3% according to the globalCOAL NEWC Index, to US$95.05/st in the week ended July 23.

Traders witnessed a generally negative performance from the European energy complex on July 26, with only Brent Crude recording mild gains. Declines in the 2011 German baseload power contract, combined with less expensive natural gas, caused DEC10 EUAs to shed 3.43%, ending the day at €13.53/t. CERs also declined, but less so than EUAs, as was the case in the previous session. As a result, the DEC10 CER-EUA spread narrowed to -€1.96, the first time it has dropped below -€2.00 on the close this year. The DEC12 spread finished at -€3.03. No CERS were issued last week, while the previous week had seen only 136,000 CERs released.

German power: €49.65/MWh, down 1.10 per cent
Coal: €97.94/t, up 0.03 per cent
Natural gas: GB41.95p/therm, up 0.60 per cent
EUAs for December 2010 delivery: €14.01/t, down 1.68 per cent
CERs for December 2010 delivery: €11.94/t, down 1.40 per cent
Brent crude oil futures for front-month 2010 delivery: US$77.17/bbl, down 0.4 per cent as of GMT 09:15, July 26
WTI crude oil futures for front-month 2010 delivery: US$78.65/bbl, down 0.5 per cent, as of GMT 09:15, July 26

Latest buzz

NYMEX crude for September delivery gave up US¢32 on Friday to settle at US$78.98/bbl, after earlier hitting US$79.60/bbl, the highest intraday price seen since May 6, while ICE Brent crude rose by US¢21 to US$77.66/bbl. Today has already seen NYMEX crude flirt with US$79, during early morning trading, but appears to have lost some momentum. Impetus has come from a combination of strong US earnings data and good macroeconomic data from Europe. In addition, the MSCI Asia Pacific Index has reached a one month high. This appears to be effectively insulating the market from suspicions that the recent stress test on EU banks was not sufficiently demanding. Only seven out of 91 banks tested failed with a combined capital shortfall of €3.5bn ($4.5bn). Some support has been lost thanks to the dissipation of Tropical Storm Bonnie over the weekend, which failed to significantly damage any oil installations in the Gulf of Mexico. The storm forced companies to shut in 50 per cent of the region’s crude oil production capacity. US GDP is expected to have grown at an annual rate of 2.5% in 2Q10, down from the 2.7% seen in 1Q10, according to a Bloomberg poll. Japanese crude oil imports rose slightly in June on year, but have been static for the first half of 2010.

According to Qatar’s deputy prime minister, HE Abdullah bin Hamad al-Attiyah, it is unclear as to how OPEC will respond to the current oil price environment given the volatility in the market. The next meeting of OPEC members is scheduled to take place in Vienna on October 14. The tanker tracker Oil Movements has issued a report that has predicted that the cartel’s oil exports (excluding Angola and Ecuador) are expected to fall by 200,000bpd in the four weeks to August 7, to 23.55mbpd.

Wood Mackenzie Consultants Ltd, in a report entitled “Race for supply – The Future of China’s Gas Market” have predicted that the country will be demanding 46Mt of LNG in 2020, compared to the 31Mt estimated for year-end 2009. It also expects China’s natural gas demand to rise to 43bnft³pd (444bnm³pa) in 2030 from the 9bnft³pa seen in 2009. The company expects a significant proportion of this growth to stem from a drive to reduce the use of oil products in the industrial and residential sectors. It also envisages that “beyond 2020, we expect to see significant volumes of indigenous unconventional gas entering the market and meeting much of China’s incremental demand…” Wood Mackenzie also predicts that unconventional gas production could exceed 11bnft³pd by 2030, equivalent to over 25 per cent of the country’s gas supply.

Given this expected development, “There is a clear imperative for LNG sellers to conclude deals with Chinese buyers in the next two to three years, or risk seeing China disappear as a potential foundation buyer for their projects,” Wood Mackenzie says.

Friday saw EUA and CER slide back, courtesy of a decline in the 2011 German baseload power contract and Brent crude, despite rising natural gas and coal prices. The marked rise seen in the previous session, also created an incentive for profit taking, further dragging down carbon prices. The DEC10 CER-EUA spread spent much of the session hovering between -€2.00 and -€2.20, before suddenly narrowing to -€1.90. It finished the day’s trading at -€2.07.

The cancellation of the cap-and-trade bill in the US comes as a bitter blow to those committed to the fight against global warming. Due to the need for 60 votes, strong democratic support, along with support from a few Republicans, was always going to be needed, making it something of a long shot. The importance of the coal industry to states such as West Virginia and Indiana, meant that cap-and -rade was never going to enjoy the support of some Democrat senators, while the Republican party has increasingly distanced itself from the issue of climate change, partly due to the polarising influence of the Tea Party and also the fact that the status of the economy and the ballooning US deficit is considered more of a priority. Some have also argued that the Obama administration did little to support the bill, choosing to expend little political capital and putting the onus on individual Democrat senators to get the job done.

What makes this development look particularly final, is the threat posed by upcoming elections in November, which could, given public anger over the slow pace of the recovery and the handling of the oil spill in the Gulf of Mexico, could easily deprive the Democrats of their majority in the Senate. The elections will also eat into the time available in the August session.

Although it might be hard to give it much credence, given the current tone of media coverage, there is considerable public support for regulation of CO₂ emissions. According to a survey conducted in May-June by the George Mason University’s Center for Climate Change Communication, which was weighed into to get a balanced overview of the US as a nation, 51 per cent of respondents were somewhat in favour of regulating CO₂ emissions, with 25 per cent strongly in favour. In addition, while 23% of self-declared Republicans were strongly opposed, the majority (52%) were somewhat in favour. In addition, 43% of those surveyed said that they would somewhat support the signing of an international treaty that would require the US to cut its CO₂ emissions by 90 per cent by 2050. This suggests that Republican opposition in the Senate may have owed more to attempt to pander to hardliners, then to floating voters.

The decision to end attempts to get the bill passed through the Senate has firmly thrown the bill back into the court of individual states, suggesting that schemes such as the Western Climate Initiative and the Regional Greenhouse Gas Initiative (RGGI) will gain in importance, creating headaches for utilities with activities across many regions of the country.

From the perspective of environmentalists, the news is perhaps less of a blow than might be expected. Given the difficulties in securing enough votes, any bill that would have successfully have passed, would likely have been so weakened, in terms of concessions to major emitters and the coal industry, that it would effectively have repeated the same errors committed during phase I of the EU ETS, in which overallocation of carbon permits led to a collapse in the price of carbon. There is also the question of time. The EU ETS was established in 2005, but is expected to only begin fully impacting on Eurozone emissions from 2013 and beyond, thanks in part to the recent economic recession, which of course begs the question as to how long it would have taken before the US version started to have an appreciable impact on the country’s carbon emissions.

To be fair, cap-and-trade owes its origins to the US and the system was used to great effect in reducing the power sector’s NO₂ and SO₂ emissions. Part of the problem stems from the vastly greater scale of carbon emissions and the consequently greater efforts needed to reduce them. For example, in 2007, the US emitted 5.838bnt of CO₂, compared to just 10.4Mt of SO₂ and 6.49Mt of NO₂ in 2005. To reduce carbon emissions on the scale required by the current scientific understanding of climate change, a radical transformation of the country’s power sector would be needed, potentially with the creation of significant infrastructure for geologically sequestering carbon. In addition, the original scheme had far less impact on the coal industry and its powerful lobby than the proposed scheme for carbon emissions.

The bill’s failure also underscores the dramatic contrast between the US and much of the rest of the world when it comes to efforts to reduce carbon emissions. With China likely to press ahead with its own scheme, arguments revolving the impact of climate change efforts on US competitiveness are starting to ring somewhat hollow. With a political system that seems driven by short-term personal gain and subject to special interests, it now looks like the US will eventually sleep-walk into an crisis of its own making.

One potential solution is to change the nature of the dialogue away from climate change and towards energy security. After all, there are many approaches that address both issues simultaneously, particularly energy efficiency and the adoption of renewable energy. Tighter energy efficiency standards would result in substantially lower carbon emissions and while they might in the short term drive up costs for consumers and businesses alike, they result in considerable savings over the mid- to long term.

The increasing lengths oil companies are having to go to supply our addiction to the black stuff has been brought starkly into focus by the disaster unfolding in the Gulf of Mexico, while at the same time, questions are being raised regarding the impact of shale gas exploitation on the environment, particularly in terms of its effect on the water table. With moratoriums in force on new drilling in the Gulf of Mexico and in the Marcellus Shale, the case for greater investment in renewable energy is looking increasingly compelling.

The same can’t be said for nuclear power, given the fact that the bill would have provided the kind of clear long-term incentives needed for utilities to take on the vast financial risks associated with new build. In addition, the act passed by Congress was stuffed full of sweeteners designed to win Republican support via the promotion of nuclear power. Although the lack of cap-and trade-legislation is hardly a positive development for renewables, their essentially modular nature makes the ongoing uncertainty less of an issue. This is likely to be scant comfort to developers and those currently developing the next-generation of clean technology, given that a robust cap-and-trade system, could have helped provide the impetus needed to make the US a global leader in renewable energy.

In a more global context, the news does not bode well for climate change negotiations in Mexico later this year. Without a credible plan in place to deliver the USA’s relatively unambitious carbon emission reduction commitments, there is less of a rationale for other countries to accept binding targets. While the concept of a truly global market for carbon always was something of a long shot, it has receded further into the distance.

Senate majority leader Harry Reid was finally forced to call it a day, when it became clear that that he and his team were unable to secure the filibuster-proof majority needed to prevent it from being watered down further or indefinitely delayed.

Senator Reid and Kerry are now working on a much reduced energy bill, which will focus on addressing the oil spill in the Gulf of Mexico and measures designed to boost energy efficiency in homes. The bill would remove the US$75m cap on the liability on oil spills, and apply this retroactively, so that it will affect BP. In addition, it will promote a switch to natural gas from diesel for trucks and other long-haul vehicles and channel additional support to the Land and Water Conservation Fund. The bill will also create Home Star, an initiative that would subsidise investments in the home aimed at lowering electricity consumption, such as higher efficiency lightning.

German power: €50.20/MWh, up 1.52 per cent
Coal: €97.92/t, up 0.88 per cent
Natural gas: GB41.70p/therm, up 5.53 per cent
EUAs for December 2010 delivery: €14.25/t, up 2.22 per cent
CERs for December 2010 delivery: €12.11/t, up 2.02 per cent
Brent crude oil futures for front-month 2010 delivery: US$77.50/bbl, down 0.4 per cent as of GMT 10:30, July 23
WTI crude oil futures for front-month 2010 delivery: US$78.99/bbl, down 0.3 per cent, as of GMT 10:30, July 23

Latest buzz

A strong performance from US stocks, after better than expected earnings from Ebay Inc and Caterpillar Inc pushed front-month NYMEX crude up 3.6% to close at US$79.30/bbl, the highest settlement price seen since May 5. The Dow Jones Index rose by 2.2% to 10347. Also providing some support was the formation of tropical storm Bonnie, south of the Bahamas, which is now on course to travel across Florida and into the Gulf of Mexico, according to the US National Hurricane Center.  However, sentiment among analysts appears to still be somewhat bearish. In a survey of 34 analysts, 38 per cent predicted that crude prices will fall through July 30, with only 10 per cent predicting an increase. This is roughly comparable to results of a previous study conducted last week. The storm has caused teams working on containing the oil spill in the Gulf of Mexico to evacuate the area. Prices have since dropped significantly, possibly as a result of profit-taking.

US natural gas inventories rose by 51bnft³ to 2.891tnft³ for the week ended July 16, according to an EIA report. As a result, inventories are down 1.8% YoY, but are 9.9% above the five-year average of 2.63tnft³. The stockbuild was well within the 49-53bnft³ predicted by a Platts survey.

Arvind Mahajan, executive director at KPMG advisory Services Pvt, warned yesterday that India is on course for a domestic coal demand/supply gap of 189Mta by 2015, equivalent to around 50% of the power sector’s projected demand, which would necessitate a doubling of coal imports. He expects utilities to add 75GW of generating capacity, which would require an additional 375Mta of coal. However, Mr Mahajan made the point that “Indian companies have an advantage in that they’re looking for lower-quality coal, which other importers in Japan, South Korea and Europe with older plants can’t use.” He also predicts that India could increase its domestic coal production by up to 80Mta via the use of better machinery and by developing currently untapped coal resources.

Analysts at Deutsche Bank have predicted that South African Richards Bay FOB coal prices (API4) could drop by US$10/t in 3Q10, due to slower economic growth in China, in a report published yesterday.

“While we remain bullish on the thermal coal market in the longer-term, over the next quarter we see demand conditions deteriorating sufficiently to threaten a modest correction in pricing,” the report said. “Industrial production is likely to continue to decelerate, potentially surprising on the downside,” Deutsche said. According to suppliers active in the Asian market, buying from Chinese companies has declined in the past month.

Over in Europe, EUAs managed to stage something of a rebound, helped by a buoyant energy complex. Strong support came from a 1.52% increase in the value of the 2011 German baseload power contract, along with a 5.53% rise in the value of UK natural gas, which is likely to promote greater use of coal and therefore greater demand for carbon allowances. CER prices also recorded gains, but on small volumes. The DEC10 CER-EUA spread finished at -€2.14, while the DEC12 spread ended yesterday at -€3.25.

The decision was made at a closed-door meeting chaired by Xie Zhenhua, deputy director of the National Development and Reform Commission (NDRC), and attended by officials from related ministries, enterprises, environmental exchanges and think tanks, China Daily reported. However, which approach should be adopted is still the subject of debate among experts and industries.

To date, the country has tried to meet its 20% energy intensity reduction target mostly by means of administrative tools. Its central government has put in place contracts with the top 1000 energy consumers to improve the latter’s energy efficiency. “The market-based carbon-trading schemes will be a cost-effective supplement to administrative means,’ said Yu Jie, an independent policy observer who previously worked for several international climate-related institutes.