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Peyto Exploration & Development Corp T.PEY

Alternate Symbol(s):  PEYUF

Peyto Exploration & Development Corp. is a Canadian energy company involved in the development and production of natural gas, oil and natural gas liquids in Alberta's deep basin. The Alberta Deep Basin is a geologic setting situated on the northeastern front of the Rocky Mountain belt in the deepest part of the Alberta sedimentary basin. It acquired Repsol Canada Energy Partnership (Repsol Assets), which included around 23,000 barrels of oil equivalent per day of low-decline production and 455,000 net acres of mineral land. The acquisition includes five operated natural gas plants with combined net natural gas processing capacity of around 400 million cubic feet per day, 2,200 kilometers (km) of operated pipelines, and a 12 MW cogeneration power plant. These assets include Edson Gas Plant and the Central Foothills Gas Gathering System. The Company has a total proved plus probable reserves of approximately 7.8 trillion cubic feet equivalent (1.3 billion barrels of oil equivalent).


TSX:PEY - Post by User

Post by TerribleEngon Dec 16, 2021 11:09am
266 Views
Post# 34236854

Interesting Phenomenon Occurring

Interesting Phenomenon OccurringWell, 

Looking at the lastest power burn data and trying to make sense of it. Every Natural Gas trading desk assumes that that higher natural gas prices will decrease usage as power plants swap to coal.

An interesting thing is occuring and I haven't seen an analyst price that in. 


While LNG is not a causal factor for marginal price determination directly (Limited export and margin goes to the buyer), it is playing a factor. Most models are accuractely showing coal substitution in Europe as utilities buy coal and leave what gas remains for commercial/residential heating decreasing demand for the given amount of HDD on the climate forecasts.

However, the coal buying has raised coal pricing (coal + Euro carbon offsets) to the same price as LNG; as it doesn't matter to a utility if they buy CO2 credits (difference between burning gas and coal) and use coal, versus buying LNG. Since coal does not require gasification facilities which are in short supply and there is surplus export loading capacity, this has forced a run on coal pricing in the US. With export clients signing supply deals to secure 2022 supplies since TTF and JKM pricing is known, global participants have no problem buying US Coal on contract to guarantee supplies.   

https://www.bloomberg.com/news/articles/2021-10-28/u-s-coal-miners-sold-out-for-2022-as-utility-demand-surges

While this won't cause NYMEX pricing to converge with LNG pricing, it is causing coal to gas switching in the US electricity market and higher gas power burn levels than would be dictated by the mild winter so far. The market right now should be in surplus, but we are at seasonal levels of draw and power burn is surprising to the upside. Coal right now is trading at the equivalent of $5/mmbtu gas. As long as pricing stays below that at regional hubs (NYMEX $4.50 or so), this phenomenon should exist for as long as European/Asians remain in dramatic shortage. At this point, it looks like March 2023 when LNG prices collapse back to historical ranges (~$10).

This is a temporary phenomenon, and when LNG prices decline, Coal will be in surplus putting pressure on US Gas pricing again. In the meantime, it should put a floor on US Gas pricing. Hopefully US Coal doesn't expand on this one time energy crunch, and US Gas doesn't expand to backfill the coal lost to exports. In the meantime, it should allow North American Energy players to get premium prices and deleverage. 
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