energy trading question

First of all, I was wondering why natural gas price affects electricity price so much in U.S. market. I interned at a trading floor this summer and I saw power traders sit very close to natural gas traders and interact a lot.. There are a lot of other sources of energy like coal, oil, nuclear etc, but why don't power traders don't follow those commodities as much as natural gas ? (like why power traders don't sit next to coal or oil traders, but natural gas traders)

Also, I was wondering whether anyone can shed a light on the supply stack of power.

Thank you!!

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Comments (19)

Oct 5, 2010 - 9:18am
Gekko21, what's your opinion? Comment below:

He said that Natural Gas is primarily used by utilities for power generation, but that a lot of firms switched to coal for part of this Summer because there was a lot of excess inventory which brought the price of coal down and made it cheaper for utilities to use.

A JPM coal trader lost 130 MM betting that coal prices would go up.

"Greed, in all of its forms; greed for life, for money, for love, for knowledge has marked the upward surge of mankind. And greed, you mark my words, will not only save Teldar Paper, but that other malfunctioning corporation called the USA."
  • 1
Oct 5, 2010 - 5:19pm
hur5249, what's your opinion? Comment below:

Thanks monty and Gekko. But, why is Natural Gas is primarily used by utilities? Isn't there cheaper source like renewable? (srry, I don't know the supply stack for sure) And when you say utilities, you mean power generators?

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Oct 5, 2010 - 5:35pm
Jerome Marrow, what's your opinion? Comment below:

Renewable? Is that a joke? I mean nuclear is the way to go, but that's never going to happen. Nat gas is cheap, relatively abundant in the US, 'clean', etc.

Best Response
Oct 5, 2010 - 8:58pm
marcellus_wallace, what's your opinion? Comment below:

Further to my point in another thread. If you look at your typical Power Stack.

1) Natural gas is the at the middle to higher end of the scale, when we look at peak demand in most US states. 2) Switching a plant from Natural Gas on/off is much easier than the other forms of energy.

Nuclear, is the cheapest. All the costs are front loaded and it basically runs always. Then you have "three mile island" so Nuclear will never be the main source. Renewables can not fill in the gap yet, so the best clean alternative currently to fill the gap from minimum to peak load is Natural Gas. Heating Oil is always at the high end of the scale, because of how its used and its prices.

As for the coal switching, I have read pages on pages about it, listened to PhD's argue back and forth. Some will agree it happened in 09 and 10, but ask to explain how and what plants and good luck. Due to the reserve in power, most plants would need to be expecting very low demand or prolonged period of dirt low natgas prices to switch from Coal to gas.

^As to your question, my point above basically means a Coal plant always runs, till the government forces them break it down.

Oct 5, 2010 - 9:44pm
MarkyMarkWahlbergWasAwesome, what's your opinion? Comment below:

essentially, the reason that they talk to nat gas traders so much is because usually, gas is on the margin. what this means is, utilities and other providers have already used their more cost-efficient forms of power (i.e. nukes, renewables, coal...), and are now going into more expensive gas power plants. in power, you employ what is known as least-cost dispatch, where you dispatch, or use, your plants in order of least cost. this makes intuitive sense, because by doing so, you meet power demand at the lowest cost, and thus maximize profits.

monty can definitely elaborate better, but you may actually see them talk to heating oil guys if the demand for power goes so high that all gas plants are used and people have to turn plants on that burn heating oil, but my guess would be that this would only happen in places like the northeast where you see lots of demand in a very small area.

------------------------------------------------------------------ "I just want to be a monkey of average intelligence who wears a suit. I'll go to business school!"
  • 2
Oct 6, 2010 - 4:08pm
MarkyMarkWahlbergWasAwesome, what's your opinion? Comment below:
monty09:
it happens in the se and rest of nation... dont think it is only nat gas fired plants or coal plants... we can have nat gas fired plants running, nuc, hyrdo, oil, coal etc etc all at same time during the peak and super peak

What about super duper peak?

------------------------------------------------------------------ "I just want to be a monkey of average intelligence who wears a suit. I'll go to business school!"
Oct 6, 2010 - 4:12pm
monty09, what's your opinion? Comment below:

I will slap you man! I will slap the hell outta you. You don't know who you messin' with. I don't even know when I'm gonna slap somebody. My reflexes just slap people. I'm like damn why did I do that? I don't know when I be slapping people. I don't know when I'm gonna slap somebody. You keep messing with me. I'm dangerous! I'm scared of myself. They call me snap and pop cuz I will snap and I will pop yo ass in the mouth! Don't mess with me man. You better watch your back. Watch your goddamn back! Even in the shower! Even on picnics! You better watch your goddamn back.

Oct 6, 2010 - 4:59pm
MarkyMarkWahlbergWasAwesome, what's your opinion? Comment below:

Money Talks. Nice try Monty.

------------------------------------------------------------------ "I just want to be a monkey of average intelligence who wears a suit. I'll go to business school!"
Oct 7, 2010 - 4:47am
metalsguru, what's your opinion? Comment below:

This is energies review for Oct 5th by pitguru.com

"Crude Oil again positive this morning as this market is over $82 now in the November contract to $82.20. Two factors joining the rally today are the weakening USD and an early report of Crude stockpile losses. "The dollar fell against the 16-nation euro, bolstering the investment appeal of commodities. The greenback was at $1.3769 against the common currency, after touching $1.3807 yesterday, the weakest rate since March 17." U.S. gasoline and distillate fuel stockpiles probably declined last week as refiners cut runs. A strike at French oil terminals threatened to spread to local refineries while the Houston Ship Channel remained closed. (1) These, with a rallying S&P, will surely try and push Crude to the $83.50 resistance it saw last time up here. Everything right now is rallying; commodities, stocks - you name it, it is going higher. For now it looks like the upside is still the play here, until of course the unemployment report comes out Friday."

xx

Oct 11, 2010 - 8:48pm
MarkyMarkWahlbergWasAwesome, what's your opinion? Comment below:

Yeah, that's definitely either: A) A moron / foreigner. B) A bot.

------------------------------------------------------------------ "I just want to be a monkey of average intelligence who wears a suit. I'll go to business school!"
Oct 31, 2010 - 3:43pm
elcaudillo, what's your opinion? Comment below:

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