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As part of a coal and natural gas update this week, Barclays said it was unlikely that new coal-fired power plants would be built in the US since the Environmental Protection Agency unveiled plans to introduce tougher emissions restrictions on them last month.
However, Barclays said it did not “really change anything” as new coal-fired power plants were unlikely before the EPA published its New Source Performance Standards.
The bank said cheap gas and soft domestic energy demand was hurting the thermal coal industry more than the EPA as it made new gas price forecasts.
“Abundant and prolific shale gas resources, coupled with the proven ability of US explorers and producers to deliver large production growth at prices of $US4-5 per million British thermal units, suggest that the upside risks to prices are limited, even in the context of growth of demand and exports,” Barclays said.
“We project natural gas prices to average $3.73/MMBtu in 2013 and [to] strengthen to $3.88 and $4.15/MMBtu in 2014 and 2015 respectively.”
Barclays estimated that the US coal displacement by gas had halved from last year’s levels due to tightening gas balances.
“While we expect it to continue to drop in the coming years, it should remain a key dynamic for balancing the natural gas markets in 2014 and 2015.”
The EPA’s next impacts to America’s coal-firing utilities are expected through its emissions-related Existing Source Performance Standards due in mid-2014.
But Barlcays said these would be laid out as guidelines to the states – unlike the NSPS – and they would need time to adhere.
“Accordingly, it could be years before ESPS actually affects coal burn rates,” Barclays said.
As part of its view that key US coal producers are more impacted by the debt they had taken on to buy metallurgical coal assets at “what we can now safely call peak prices”, Barclays maintained underweight ratings on bonds held by Arch Coal and Alpha Natural Resources.
Barclays downgraded its rating from “market weight” to “underweight” on Peabody Energy’s 2018, 2021 and 2021 senior notes despite a “modest cash burn” compared to Alpha and Arch.
