Wednesday 28 January 2009

Pain for Utilities in 2009

As you know, we don’t do financial advice here, but we do take an interest! The first of CU’s predictions for 2009 was this:

Oil will be the investment opportunity, with never to be seen again low valuations in oil companies.

And later he had a look at what’s going on in the sector – which, as Alphaville also reports, includes some crazy happenings.

So what about gas and power utilities, then ? Aren’t they just middlemen, who make a healthy turn irrespective of whether energy prices are going up or down ?

Putting aside the fact that several of them have upstream assets as well as utility operations, we could say that in ‘normal’ times they can indeed insulate themselves from energy price risk, just taking a margin. But these are not normal times, and they are badly exposed to the huge downturn in industrial energy demand. This is because, perhaps surprisingly, even the very largest industrials mostly buy energy like you and I do – we may agree the price, but how much actual gas and leccy we are going to use is a matter of educated guesswork based on historical data, and the supplier takes the full risk that we don’t use the amount he expects us to.

Often, his concern is an unexpected peak in demand: but not in 2009! The utilities have bought gas and power forward, in amounts that reflect past consumption – and they are on the hook for these quantities. But most industrial buyers are not.

This is causing agonies for several of the big suppliers right now, and until the collapsing industrial demand (20% down by some estimates) works through the system, taking at least 6 – 12 months, they will have a very uncomfortable time of it.

It won’t be a happy sector in 2009 - particularly for any of them that haven't diversified into upstream assets.



Old BE said...

So does that mean the lights won't go out, after all?

Perhaps BG and Npower will be next in line for a bailout...

not an economist said...

"The utilities have bought gas and power forward, in amounts that reflect past consumption – and they are on the hook for these quantities."

May I ask sthg please ...

Does this mean that these companies are committed to both the quantities they ordered AND the prevailing prices at that time, such that if prices fall during the year they will not get the benefits of those falls?

Steven_L said...

The price depends on the terms of the forward contract they entered into and whether they locked in to any particular price by hedging.

Nick Drew said...

BE - best guess must be that the lights will stay on (no politician can survive rolling blackouts, as has been seen worldwide), but at the expense of (a) ditching green policies and (b) lots of panicky last-minute new power-plant building

Steven has it nailed, NAE: they sign contracts with agreed price formulae (not usually fixed prices - they tend to be indexed to the price of oil) and fixed minumum quantities. They may indeed have hedged the oil-indexed prices: but it's mostly the quantities that will stuff them.

Continental contracts tend also to have 're-opener' clauses which allow key terms to be renegotiated periodically (e.g. every 3 years)if market conditions have changed since the last review (!!). Some of these clauses allow both price and volume to be renegotiated, within limits: but some only allow price.

Failure to agree can then result in arbitration, or recourse to the courts. (This doesn't really work under English law, so UK purchase contracts don't generally operate these provisions)

One cannot imagine the Russians being particularly understanding in such renegotiations, which tend to be pure win-lose affairs.

Anonymous said...

aaaa片, 免費聊天, 咆哮小老鼠影片分享區, 金瓶梅影片, av女優王國, 78論壇, 女同聊天室, 熟女貼圖, 1069壞朋友論壇gay, 淫蕩少女總部, 日本情色派, 平水相逢, 黑澀會美眉無名, 網路小說免費看, 999東洋成人, 免費視訊聊天, 情色電影分享區, 9k躺伯虎聊天室, 傑克論壇, 日本女星杉本彩寫真, 自拍電影免費下載, a片論壇, 情色短片試看, 素人自拍寫真, 免費成人影音, 彩虹自拍, 小魔女貼影片, 自拍裸體寫真, 禿頭俱樂部, 環球av影音城, 學生色情聊天室, 視訊美女, 辣妹情色圖, 性感卡通美女圖片, 影音, 情色照片 做愛, hilive tv , 忘年之交聊天室, 制服美女, 性感辣妹, ut 女同聊天室, 淫蕩自拍, 處女貼圖貼片區, 聊天ukiss tw, 亞亞成人館, 777成人, 秋瓷炫裸體寫真, 淫蕩天使貼圖, 十八禁成人影音, 禁地論壇, 洪爺淫蕩自拍, 秘書自拍圖片,

做愛的漫畫圖片, 情色電影分享區, 做愛ㄉ影片, 丁字褲美女寫真, 色美眉, 自拍俱樂部首頁, 日本偷自拍圖片, 色情做愛影片, 情色貼圖區, 八國聯軍情色網, 免費線上a片, 淫蕩女孩自拍, 美國a片, 都都成人站, 色情自拍, 本土自拍照片, 熊貓貼圖區, 色情影片, 5278影片網, 脫星寫真圖片, 粉喵聊天室, 金瓶梅18, sex888影片分享區, 1007視訊, 雙贏論壇, 爆爆爽a片免費看, 天堂私服論壇, 情色電影下載, 成人短片, 麗的線上情色小遊戲, 情色動畫免費下載, 日本女優, 小說論壇, 777成人區, showlive影音聊天網, 聊天室尋夢園, 義大利女星寫真集, 韓國a片, 熟女人妻援交, 0204成人, 性感內衣模特兒, 影片, 情色卡通, 85cc免費影城85cc, 本土自拍照片, 成人漫畫區, 18禁, 情人節阿性,

Anonymous said...

情色電影, aio交友愛情館, 言情小說, 愛情小說, 色情A片, 情色論壇, 色情影片, 視訊聊天室, 免費視訊聊天, 免費視訊, 視訊美女, 視訊交友, ut聊天室, 視訊聊天, 免費視訊聊天室, a片下載, av片, A漫, av dvd, av成人網, 聊天室, 成人論壇, 本土自拍, 自拍, A片, 愛情公寓, 情色, 舊情人, 情色貼圖, 情色文學, 情色交友, 色情聊天室, 色情小說, 一葉情貼圖片區, 情色小說, 色情, 色情遊戲, 情色視訊, 情色電影, aio交友愛情館, 色情a片, 一夜情, 辣妹視訊, 視訊聊天室, 免費視訊聊天, 免費視訊, 視訊, 視訊美女, 美女視訊, 視訊交友, 視訊聊天, 免費視訊聊天室, 情人視訊網, 影音視訊聊天室, 視訊交友90739, 成人影片, 成人交友,

免費A片, 本土自拍, AV女優, 美女視訊, 情色交友, 免費AV, 色情網站, 辣妹視訊, 美女交友, 色情影片, 成人影片, 成人網站, A片,H漫, 18成人, 成人圖片, 成人漫畫, 情色網, 日本A片, 免費A片下載, 性愛, 成人交友, 嘟嘟成人網, 成人電影, 成人, 成人貼圖, 成人小說, 成人文章, 成人圖片區, 免費成人影片, 成人遊戲, 微風成人, 愛情公寓, 情色, 情色貼圖, 情色文學, 做愛, 色情聊天室, 色情小說, 一葉情貼圖片區, 情色小說, 色情, 寄情築園小遊戲, 色情遊戲, 情色視訊,