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Panelists debate state, federal roles in energy markets; Alberta goes to court to reinstate PPAs

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Street Talk Episode 45 - Fed Moving From Rate Hikes To Lower For Longer

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Panelists debate state, federal roles in energy markets; Alberta goes to court to reinstate PPAs

Top news

President and CEOChris Crane said separate national energy and environmental policiescontributed to losses in his company's competitive businesses, leading Exelonto look to individual states for solutions. Crane, in a dialogue with MontanaPublic Service Commission member Travis Kavulla, opened the general session ofthe National Association of Regulatory Utility Commissioners' summer meetingJuly 25 in Nashville, Tenn. Kavulla is NARUC's president.

Biggrowth projects, leverage reductions and access to capital are on midstreamenergy analysts' radar for the second-quarter earnings season as the hard-hitindustry rebalances. "Looking across the entire sector, we are mostinterested in indications of how our companies are progressing on growthprojects, current views on global ethane and LPG [liquefied petroleum gas]export market potential, and the potential headwind to long-term growth fromoverbuilt midstream capacity," Sanford C. Bernstein & Co. LLC analystsJean Ann Salisbury, Samuel Shrank and Jackson Kulas said in a July 20 notepreviewing earnings.

WithU.S. coal production pushingrecord lows, there are increasingly scant glimmers of hope for coal investorsas second-quarter earnings reports loom. In the coal space, the second-quarterearnings season will primarily offer investors in smaller coal companies aglimpse at what they are doing to survive the depressed market. The larger coalproducers in the U.S. — PeabodyEnergy Corp., ArchCoal Inc. and AlphaNatural Resources Inc. — have all filed for bankruptcy courtprotection amid prolonged weakness in coal pricing and broader fuel demand.

Power

* Atthe request of its bondholders, TerraFormPower Inc. on July 26 revealedits preliminary, unaudited 2015 financial results. The yieldcoreported adjusted EBITDA in a range of $354 million to $364 million on adjustedrevenue of $464 million to $470 million, and cash available for distribution of$224 million to $234 million. TerraForm, which said it owns roughly 3,000 MW ofrenewable capacity in the U.S., U.K., Canada and Chile, said its 2015 financialscould "change materially" upon completion of an audit of its results.

*Alberta's government has started court action to enforce power purchasearrangements that have been returned to a provincial agency under what it callsan "Enron clause" that could cost taxpayers as much as C$2 billionbetween now and 2020. In responseto Alberta's litigation, CapitalPower Corp. said the "claim is misleading because it isincomplete" and that it "will look to the courts to ensure that theGovernment of Alberta cannot retroactively amend an arrangement for whichAlbertan companies paid and upon which they have been relying in good faith for16 years."

*More than 30 organizations and environmental groups, including the Sierra Club,are calling on New York Gov. Andrew Cuomo to urge the toreschedule a vote on DeepwaterWind LLC's proposed 90-MW offshore wind project, BloombergNews reported. The move came after LIPA postponed its scheduled July 20 meeting and its expectedapproval of the proposed project at the request of the New York State EnergyResearch and Development Authority.

*DTE Energy Co.increased itsfull-year 2016 operating EPS guidance to $4.91 to $5.19 from $4.80 to $5.05after recording a year-over-year increase in second-quarter operating earningsto $177 million, or 98 cents per share, from $137 million, or 76 cents pershare.

*The Arizona Corporation Commission is consideringa proposed order that would drop its staff's proposal to impose acontroversial customer demand charge in UNS Electric Inc.'s pending rate case and instead adopta transition plan to move customers to universal default time-of-use rates.Administrative Law Judge Jane Rodda issued her recommended opinion and orderJuly 20 in UNS Electric's rate proceeding.

*Entergy New Orleans Inc.has asked the New Orleans City Council to approve its planned restructuringthat calls for the transfer of substantially all of its assets and operationsto a new subsidiary. The EntergyCorp. subsidiary expects to complete the restructuring by the endof 2017, according to a filing.

Natural gas/midstream

* Aconsortium of investors, including pension funds and Canada's Public SectorPension Investment Board, is vying to acquire 's 49.9% stake inMexican pipeline assets, sources told BloombergNews. CKD Infraestructura Mexico SA, a Mexican joint venture of ,and at least three other suitors are also planning to make bids for the stake,which could be valued at around $2 billion.

*CONSOL Energy Inc.increased its annual 2016 E&P division production guidance to 380 Bcfe to385 Bcfe from its previous guidance of about 378 Bcfe after recording a 32%year-over-year increase in second-quarter production to 99.3 Bcfe from 75.5Bcfe. However, the company reducedits E&P division capital budget to $190 million to $205 million givencontinued "capital efficiency improvements."

* LOGOS Resources has closed its acquisition of about129,000 net acres in the San Juan Basin. In a statement,the company said it used a $150 million commitment from private equity fundsmanaged by to fund the acquisition. The assets have a net production of about 38 MMcfe/d.

*Freeport LNG's $1.25 billion project bond offering could inspire that arelooking to refinance as they face the long transition from project planning tosufficient cash flow. "It's a good sign that the bond was placedsuccessfully and well-received in the market," Rohit Chaudhry, energy andproject partner at Chadbourne & Parke LLP, said in an interview.

* TheCanadian government has accelerated the phaseout of DOT-111 tank cars forshipping crude oil by six months to Nov. 1, the FinancialPost reported. The DOT-111 cars were involved in the July 2013deadly Quebec crudeoil train derailment,which prompted questions about the safety of transporting oil by both rail andthe pipeline.

Coal

*Alliance Resource Partners LPsold 7.96 milliontons of coal during the second quarter of 2016, down 24% from 10.48 milliontons sold in the same quarter of last year. The decrease was driven by plannedreductions of production volumes in both the Illinois Basin and Appalachianregions, the partnership said. On the earnings front, second-quarter net incomeattributable to Alliance Resource Partners was down to $82.7 million from $94.9million a year ago. Revenues were $439.2 million in the 2016 quarter, adecrease from $604.7 million in the 2015 quarter.

* plans to divestitself of its Miller Creek and Fola mines in West Virginia, the last two coalmines the company holds in central Appalachia, by paying another producer$44 million to takethe properties off its hands. CONSOL, which has other mines run by its masterlimited partnership CNX CoalResources LP in northern Appalachia, will transfer the mines toBooth Energy's Southeastern Land in exchange for Booth taking on $103 millionin liabilities for the mines.

*CONSOL Energy sold6.2 million tons of coal from its Pennsylvania operations during the secondquarter of 2016, an increase from 5.7 million tons of coal sold during sameperiod of last year. Total unit costs were $34.46 per ton, compared with $44.15per ton in the year-earlier quarter, the company said. CONSOL's coal divisiongenerated $48.2 million in second-quarter 2016 adjusted EBITDA attributable tocontinuing operations.

*The American Coal Council blasteda report by the White House Council of Economic Advisors forfailing to properly analyze market competition in a larger sense. The CEAreleased a report in June that criticized the current federal coal leasingprogram and proposed an increase in royalties.

Commodities

*The reluctantliquidation of smart money long positions appeared to gain momentum last weekas prices of crude oil continuedto fall. The appearance in natural gas was similar, with managedmoney traders opening new short positions.

*After a settle down 3.0 cents at $2.747/MMBtu in the week's opening session,August natural gas futures continued to shed value overnight ahead of the Tuesday, July 26, openand options expiration at the close, as pressure from prospects for record-highend-of-season inventories undermine support from expectations for acontinuation of the slow pace of storage-building and warmer weather forecasts.At last look, the August gas futures contract was down 2.0 cents to$2.727/MMBtu, while the September contract eased 2.1 cents to $2.691/MMBtu.

* Powervalues for next-day delivery could have a weak showing Tuesday, July 26, as predominantlydeclining demand projections for midweek combine with ongoing losses at thenatural gas futures complex. Losing 3.0 cents in the prior session, Augustnatural gas futures dropped even lower overnight and were last pegged at$2.715/MMBtu ahead of the contract's expiration Wednesday afternoon.

*Elevated cooling demand, expected to come with hotter weather forecasts andhigher fueling costs implied by an uptick in the natural gas futures complex,drove most power trading hubs across the country to price August power at amodest premium duringthe week ended July 22.

New from RRA

*U.S. broad marketsadvanced further last week, with the S&P 500 ending the week up 0.6% on a record closing high.Utilities gained 1.4% over the week, and oil prices dipped 3.8% to finish theweek at $44.19/bbl.

Quoted

"Thisis the strongest platform in history when it comes to tackling the climatecrisis, transitioning off of fossil fuels, and growing our clean energyeconomy," Sierra Club Executive Director Michael Brune of the Democratic Party's 2016policy platform.

The day ahead

*Early morning futures indicators pointed to a mixed opening for the U.S. equitymarkets. To view more SNL equity market indexes, click here.To view more SNL Energy commodities prices, click here.