TEXT-Fitch: lower natural gas prices hurting electricity wholesalers
Feb 21 - Fitch believes that the ongoing low natural gas prices in the U.S. continue to have a positive effect on many issuers, particularly in energy-intensive manufacturing sectors like refining, chemicals, and fertilizers. However, low natural gas prices have pressured electrical utilities and others that depend on the sale of excess power and continue to put pressure on exploration and production companies with significant spot exposure to North American natural gas. Surging domestic oil and gas output has been beneficial from a macroeconomic perspective. The December U.S. trade deficit narrowed by 20.7% ($38.5 billion) largely based on an all-time record export of petroleum products and the smallest amount of oil imported in 16 years. Over the near term, we believe this export activity will continue. For example, domestic refiners will continue to have a significant competitive advantage due to their access to cheap natural gas and low cost domestic light crude. In 2011, the U.S. exported $52 billion worth of petroleum products. In 2012, exports rose to $61 billion. However, low natural gas prices may also continue to put pressure on power producers that depend heavily on the sale of excess power to subsidize their retail revenue. We expect wholesale power prices to increase slowly through 2015 but remain near current levels, driven by historically low natural gas prices, high capacity reserve margins, and weaker demand. We also believe that increased dependence on natural gas can create issues over the longer term. For example, if low gas prices result in accelerated retirement of already challenged coal fired plants, the ability to revert to coal usage following those retirements may be limited. Additional information is available on www.fitchratings.com. The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article, which may include hyperlinks to companies and current ratings, can be accessed at www.fitchratings.com. All opinions expressed are those of Fitch Ratings.
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