Market intelligence

orbeo and Société Générale Commodity research team provide you:

• - regular (e.g. monthly) information, briefs and analyses on CER market and its evolution;
• - instant direct access to analysts at any time and update on price forecasts;
• - designing and proposing a suitable and value maximizing strategy for managing and trading of CER’s: ORBEO trading desk will share its view on its own CER sale strategy and propose adapted timing / volume of market operations adapted to SOCAR’s flow of CER;
• - access to latest market instruments on emission markets (e.g., options, swaps, cross-commodity deals).

Weekly market analysis

SG orbeo Carbon Drivers - March 8th, 2010

We might touch year’s high this week!

• - Dec10 EUA prices touched €13.5 /t last week then consolidated back to €13.1 /t – an expected yet eventless price action. Rally in equity and oil market failed to bear any impact on carbon

• - For this week, we think present momentum coupled with continuing cold wave could help prices reach their 2010 high to date (€13.8 /t for Dec10 EUA) – but gas price reaction will be key for that

• - No significant change is expected in forward curves or major spreads. To be watched these days is still the behavior of spot CER, the premium on which is pulling the whole CER curve into backwardation.

SG orbeo Carbon Specials - February 22th, 2010

EUA prices explained by CER and fuel-switch - except when gas is cheap!

• - The empirical supply curve of emission reductions tends to suggest that the EUA price would then be influenced by the fuel switch price (i.e., the price that allows switching from most carbon emitting fuel to the directly less carbon emitting fuel, in practice, this is generally from coal to gas in the European power system) and the CER price. These two values vary every day and can change according to the price of fuel and electricity. Hence the observed price of EUA should be a weighted average of CER and fuel switch prices.

• - We tested this hypothesis by running analyses relating the estimated fuel switch price, the CER observed price and the EUA observed price since early 2007. First, this shows that the fuel switch price is largely driven by the NBP gas first nearby price. Second, our results indicate the existence of two main market configurations. When the NBP gas price is above £p40 /th, the observed EUA price is inbetween the CER and fuel switch and indeed closely modelled by a weighted average of the CER price (at about 70%) and the fuel switch price (at about 30%). This happened between October 2007 and August 2008 and between August 2008 and March 2009. When the NBP gas first nearby price is below £p40 /th, the theoretical EUA price only depends on the CER price. This happened between January 2007 and September 2007, in August 2008 and since March 2009.

• - Today the market features low gas prices – below £p40 /th. Hence EUA continue to be independent on gas prices. The acquisition cost of CER, historically largely dependent on Chinese floor price (48% of issued CER, most probably more than 70% of total transactions including forward) is an important element explaining EUA level these days. EU ETS is now also driven by new CDM project costs. The paradoxical result is that a further decrease in NBP gas prices should not substantially impact EUA prices, beyond daily directional moves.

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