Daniel Lacalle

Commodities Update

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Marcellus production went from 12.1-Bcf/d last Thursday and settled at 12.9-Bcf/d, more than expected, potentially suggesting a faster timeline in filling the new pipes: in weeks instead of months seen historically.

With new infrastructure, Marcellus production should continue to grow and a seasonal price pattern could be emerging – rising just before winter and falling steeply in summer/early fall.

Marcellus output could rise by an additional 2-Bcf/d from now to 3Q’14 as the backlog of production is cleared.

At one-fifth of US production, Marcellus production has already surpassed Norway and China and is approaching Qatar’s and Iran’s levels of ~15-Bcf/d.

Carbon vote this Friday. EU Council will vote on the backloading proposal (the legislative change that temporarily reins back carbon permit supply). The process is very complicated in terms of getting approval through the EU (tri-party approval and final agreement on text by Council, Parliament and Commission). Best case, it could be approved in Spring 2014 but Zoltan thinks H214 is more likely.

It looks like the EU Council is going to vote in favour on Friday, which means that the depressed carbon price (up 5% yesterday) could run higher. This means that power prices could too (+€1/t = +€0.7/MWh) and they rose +1% yesterday (currently around €37/MWh);

We’re not fans of central European generation in general (the carbon market is heavily over-supplied and there is still too much generation capacity).

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