Recs: 4 LNG pricing firestorm in the works LNG Pricing Firestorm in the works EU gas, power prices to soar as coal in pits - UBS Thu Apr 3, 2008 2:53pm BST
LONDON, April 3 (Reuters) - The closure of European coal-fired power plants over the next few years will drive gas prices up sharply, pushing power and carbon emissions costs up and boosting profits for cleaner power generators, according to analysts from Swiss bank UBS (UBSN.VX: Quote, Profile, Research). Soaring coal prices and tightening environmental controls on power sector emissions will see European generators drop coal and burn an extra 75 billion cubic metres gas a year -- or all the gas currently used in Italy.
"The outlook on hard coal and lignite power generation is pretty grim," UBS said in an analyst note on Thursday. "The spike in coal fuel costs and, most of all, the environmental constraints on hard coal and lignite will imply a fall in volumes from coal facilities."
UBS said because European utilities will have to meet much of the extra demand by buying more liquefied natural gas on an already tight global LNG market, wholesale gas prices across Europe could rise by 50 percent to $13-17 per million British thermal units, or 70-75 pence per therm within the next 5 years.
This could drive up wholesale power prices by more than 60 percent to as much as 110 euros per megawatt hour, while carbon emissions prices could more than double to 51 euros per tonne after carbon contraints intensify in 2012.
Generators that burn a lot of coal to supply their customers with electricity will see their profit margins squeezed, with the impact partially dampened by rising power prices. But nuclear and renewable power companies that do not have to pay to pollute stand to profit.
UBS said nuclear power companies like British Energy (BGY.L: Quote, Profile, Research), France's EDF (EDF.PA: Quote, Profile, Research) and Finland's Fortum (FUM1V.HE: Quote, Profile, Research) should profit from higher power prices, while Spain's Union Fenosa (UNF.MC: Quote, Profile, Research), French Suez-GDF and Germany's E.ON (EONG.DE: Quote, Profile, Research) will also benefit from high gas prices. (Reporting by Daniel Fineren