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Global Credit Research - 05 Apr 2012
New York, April 05, 2012 -- The US energy sector is undergoing a permanent change as natural gas prices
will remain low for the foreseeable future, with significant implications
over the next decade for the power, pipeline, coal and rail
industries, says a new report by Moody's Investors Service.
"Moody's believes that low natural gas prices -- currently
at a 10-year trough -- will continue well beyond 2013.
This is creating a fundamental shift in North America's energy infrastructure,
as low prices continue to erode margins for unregulated power companies
such as Exelon, First Energy and PPL," said Jim Hempstead,
a Moody's Senior Vice President and author of the report.
"Coal will find it increasingly difficult to compete with gas as
a power source over the next decade and we expect miners to continue their
shift toward non-domestic revenue opportunities," added
Hempstead.
Moody's says that coal-fired power plant retirements will
cut the power sector's demand for coal by up to 10% between
2012 and 2020, and as coal consumption drops by roughly 100 million
tons the industry will become increasingly focused on exports.
The report highlights Peabody Energy, Arch, Consol and Cloud
Peak Energy resources as industry players that are already securing additional
port capacity to reach export markets.
The drop in domestic coal demand, one of the US railroad industry's
most profitable segments, will lead to long-term changes
in that sector too, says Moody's. Higher exports from
western coal producers will increase volumes for Union Pacific and Burlington
Northern Santa Fe. Illinois Basin and met coal production in the
east will increasingly benefit CSX and Norfolk Southern.
The report also notes that new natural gas pipelines serving the shale
production regions will create new competitive risks for the existing
interstate pipeline network. Companies with assets near the production
basins, such as NiSource and Dominion Resources, will benefit,
but disappearing arbitrage opportunities will hurt the marketing arms
of such utilities as AGL Resources and Vectren.
For more information, please see the full report "Low natural
gas prices herald long-term change in US energy infrastructure"
on www.moodys.com.
***
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James Hempstead
Senior Vice President
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
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A.J. Sabatelle
Senior Vice President
Corporate Finance Group
JOURNALISTS: 212-553-0376
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Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
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Moody's: No end in sight for low natural gas prices, power landscape to be changed permanently
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