By Catherine Airlie
Nov. 17 (Bloomberg) -- Coal in Europe is trading close to a two-year high as rising demand in China drives up prices around the world, making natural gas more attractive to U.K. and German utilities for producing power.
Benchmark coal for delivery next month in northwest Europe reached $108.50 a metric ton yesterday, the highest level since
Nov. 7, 2008, according to broker data compiled by Bloomberg.
China faces ``a moderate shortage'' of the fuel that generates 80 percent of its electricity after temperatures fell below freezing earlier than usual this year, New York-based Commodore Research said on Nov. 15.
``Coal prices are now completely driven by Asian demand, and European utilities have to accept that price,'' said Emmanuel Fages, a Paris-based analyst at Societe Generale.
China, the world's biggest coal user, will import record amounts of the fuel in November and December, according to Commodore. U.K. power plants have struggled in 2010 to make a profit from using coal for the first time in at least three years, according to Bloomberg data. Centrica Plc and RWE AG started gas-fired plants this year in Britain, Europe's biggest market for the fuel.
U.K. coal consumption dropped almost 50 percent since January, while use of gas was little changed, the Department of Energy and Climate Change said on Oct. 28. Britain used coal for about 28 percent of its power generation last year and gas for about 45 percent, government data show.
The profit from turning gas into power for delivery next month in Britain was 6.31 pounds ($10.02) a megawatt hour as of yesterday's close, according to a measure known as the clean-spark spread calculated by Bloomberg. The return from coal, which is known as the clean-dark spread and includes the cost of carbon-emission permits, was 1.47 pound a megawatt hour.
No Profit
The U.K.'s clean-dark spread for next month averaged minus 9 pence per megawatt hour in 2010, according to Bloomberg data.
``The historic rise of coal price juxtaposed over relatively low power prices in Europe has pushed the dark spread close to zero,'' Marius Frunza, the Paris-based head of structuring at Sagacarbon, a unit of Caisse des Depots et Consignations, said in an e-mail.
Gas plants have ``higher efficiencies and lower costs to transport the fuel,'' said Nick Campbell, an energy analyst at Lytham St. Annes, England-based Inenco Group Ltd. Gas is also a cleaner fuel than coal, requiring about half as many emission allowances, he said.
While U.K. natural gas for delivery next month gained 44 percent this year to close yesterday at 48.25 pence a therm, that's still about half the price reached in 2008, Bloomberg data show.
Fuel of Choice
Natural gas will be the fuel of choice for the next two years because of surplus supplies and rising costs for emission allowances, Omar Abbosh, a London-based managing director at Accenture Plc, the world's second-largest technology-consulting firm, said in an interview.
``We will have a dash for gas,'' Abbosh said. ``Our coal-fired power plants and existing nuclear plants are now beginning to close down, partly due to regulations. The economics for gas look good for the next couple of years.''
In Germany, Europe's biggest energy market, the next-month profit spread at coal-fired plants was 3.34 euros ($4.50) yesterday, according to Bloomberg data. It was 3.42 euros at gas plants. Germany got about 18 percent of its power from coal in 2009 and 15 percent from gas.
While German power prices have yet to recover from the global recession, U.K. prices are starting to rise as colder weather boosts demand. U.K. baseload power for December topped 45 pounds a megawatt hour yesterday in London, the highest price since February 2009, according to Bloomberg data.
Switch to Gas
Centrica Plc, the U.K.'s largest energy supplier, switched on the 900-megawatt Langage gas-power station on England's South Coast in April. RWE AG, Germany's second-biggest utility, used gas for its 1,650-megawatt Staythorpe plant, which started in September near Nottingham, England. Electricite de France SA and RWE plan to add more gas capacity in Britain over the next two years, according to their websites.
Britain has four terminals for importing liquefied natural gas and gets the fuel directly from North Sea fields. While China is less reliant on gas, its LNG imports rose 24 percent in September from a year earlier, the Beijing-based General Administration of Customs said Oct. 25.
China plans to triple its use of natural gas to about 10 percent of energy consumption by 2020 and cut reliance on coal and oil, according to Wood Mackenzie Consultants Ltd.
For Related News and Information:
European power-market stories {TNI EUROPE PWRMARKET <GO>}
Today's top power news {PTOP <GO>} and energy news {ETOP <GO>}
European electricity-markets home page {EPWR <GO>}
German power-plant shutdown news {TNI GER VOLTOUT <GO>}
--With assistance from Alistair Holloway, Lars Paulsson and Ben
Farey in London. Editors: Mike Anderson, Justin Carrigan
To contact the reporter on this story:
Catherine Airlie at +44-20-7073-3308 or
cairlie@bloomberg.net
To contact the editor responsible for this story:
Stephen Voss at +44-20-7073-3520 or sev@bloomberg.net
