GNE - Genesis Energy

[Plata]

Looking at slide 33 of the results presentation, it shows that "Retail Purchases" of electricity costed an average of $151 per MWh while generation costs via thermal are shown to be $96 per MWh. Is that thermal price not reflective of the current market price of coal? Why pay more buying on market vs increasing thermal generation?

[Shareguy]

https://www.cnn.com/2022/08/23/economy/china-coal-reliance-heat-wave-intl-hnk/index.html

[mcdongle]

https://www.cnn.com/2022/08/23/economy/china-coal-reliance-heat-wave-intl-hnk/index.html

I am sure Russia will sell them plenty of coal if needed

[winner (n)]

jeez, GNE share price back to 290 ..... NZ govt 10 year a tad off 4%

They said the relationship between the two had broken down ......hmmm

Hope tomorrow a better day for share price

[Plata]

Given GNE has ~18% of its market cap in coal reserves with significant unrealised value if sold at todays prices, I figured I'd have a look to see if it actually makes sense keeping it. The full year results said 900,000 tonnes worth is stockpiled. From memory, Huntley can burn all of that in 2-4 months at full output so while significant in mass and value, it isn't overkill from the perspective of running Huntley.

At todays coal price of ~600 NZD per tonne, the stockpile has a value of ~$540 million NZD.
Coal has an energy content of ~8100 kwh per tonne. If the entire stockpile was consumed by Huntley to make power at 40% efficiency (an assumption), the stockpile would produce ~2930 GWh. If sold at the retail netback of $128 per MWh achieved during 2020 (recent peak netback), that would deliver $375 million NZD in "total netback". Ignoring costs of coal sale, GNE must achieve an average netback exceeding ~$180 per MWh in order to extract equivalent value by burning the coal for electricity.

Unless coal prices rapidly decline or netback rises significantly (over 40%, pretty unrealistic) selling the coal could be a more attractive option and free up significant cash to invest in something that actually has a long term future in NZ. From what I understand, GNE must anticipate it will be able to hold other market players at gun point in an impending dry year in order to deliver superior value by burning it. If this is not the case, is GNE securing the electricity market for ESG reasons? Will be very interesting to see if these market insurance options get much attention...

[Basil]

Good analysis there Plata.  I think they are ostensibly looking to sell dry year callable generation optionality, (forget what they have labelled the technical name for it) @ $200+ mwh.  How much uptake from other gentailers will be interesting to see. 

It's not hard to foresee a truly desperate energy shortage in Europe in their coming winter.  I feel sorry for them, already in some countries paying $400 barrel oil equivalent for their gas supplies, (if they can get enough).

Coal could easily go dramatically higher from its already highly elevated level.  GNE sitting on a huge stockpile of black gold.

[Basil]

Info on market security options released today.

http://nzx-prod-s7fsd7f98s.s3-website-ap-southeast-2.amazonaws.com/attachments/GNE/397866/377919.pdf

[Plata]

They expect to burn between ~250,000 to 1,100,000 tonnes of coal in 2023? Those swaptions expire soon, probably won't be in force for much of FY2023... big price increase coming soon or are they going to burn it at a loss with respect to the current market prices of coal and electricity?

[Basil]

My understanding is they are determined to only burn the coal if its earnings accretive to do so based on the current market value of coal and carbon credits.  The value of their MASSIVE in the money positions they hold on coal prices and carbon credits is not something that will be handed out as a free lunch to other market participants.

[Plata]

https://foreignpolicy.com/2022/08/26/europe-energy-crisis-natural-gas-economy-winter/

Things are looking pretty bleak for the European winter. I note many nations are allegedly building rapid rollout floating LNG terminals to increase import capacity. Obviously there is limited LNG shipping capacity to consider as well, but I struggle to see how the winter will bring anything but hot hot prices down under for anything that burns. Is exporting from Kupe an option? I imagine it would be reputationally advantageous for GNE to run down the Kupe reserve selling it overseas at exorbitant prices, than for them to try impose those same prices on consumers here. Wondering if GNE+WDS or BPT could be prudent, just the thought makes me feel the need to plant some trees.

[lorraina]

Good idea Planta.

[Raven]

https://foreignpolicy.com/2022/08/26/europe-energy-crisis-natural-gas-economy-winter/

Things are looking pretty bleak for the European winter. I note many nations are allegedly building rapid rollout floating LNG terminals to increase import capacity. Obviously there is limited LNG shipping capacity to consider as well, but I struggle to see how the winter will bring anything but hot hot prices down under for anything that burns. Is exporting from Kupe an option? I imagine it would be reputationally advantageous for GNE to run down the Kupe reserve selling it overseas at exorbitant prices, than for them to try impose those same prices on consumers here. Wondering if GNE+WDS or BPT could be prudent, just the thought makes me feel the need to plant some trees.

Not an expert, but as I understand it there is no existing capability or facility to turn NZ gas into LNG for export quantities.

[Plata]

Huntley is burning coal right now, spot price is over $600 per MWh 

Edit: Was even higher! All those people cooking dinner huh?

You cannot view this attachment.

[Basil]

With an energy crisis in Europe now in full effect surely there are implications for this part of the world ?
I would think GNE shareholders are "well positioned"

[mfd]

With an energy crisis in Europe now in full effect surely there are implications for this part of the world ?
I would think GNE shareholders are "well positioned"

Not necessarily, the gas markets are disconnected as it's so hard to transport. Even in the US which is actively exporting gas to Europe, you can buy gas for something like 10% of what it would go for in Europe. This isn't oil where prices in different countries are kept relatively steady by relatively easy arbitrage. I understand it takes a couple of years to build infrastructure to export gas and there's no way anyone's spending that money with our limited and dwindling supply.

If we have to buy more coal we will presumably be exposed to worldwide trends but Genesis say they have a big stockpile and predict they will burn far less of it into the future.

The truth is NZ electricity consumers are 'well positioned' compared to much of the world.