Energy In-depth: Respected industry analyst says ‘OPEC is finished’

Editor’s note: Each Friday, Talk Business & Politics provides “Energy In-depth,” a round-up of energy and regulatory news.

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‘OPEC FINISHED,’ RESPECTED WALL STREET ANALYST SAYS
After the Organization of the Petroleum Exporting Countries (OPEC) failed on Thursday to agree on a new production ceiling for crude oil, a highly influential Wall Street analyst said the international energy cartel’s influence on oil markets is gone as U.S. shale production has tipped the scales in favor of American oil producers.

“OPEC is finished. OPEC is over,” Fadel Gheit, senior oil and gas analyst at New York City-based Oppenheimer & Co., said in an interview with CNBC’s “Power Lunch.” OPEC concluded its 169th meeting in Vienna, Austria with member countries confirming “their commitment to a stable and balanced oil market” with prices at levels that are suitable for both producers and consumers.

“Shale production has completely changed the way we look at energy and it’s not going to change. The fact of the matter is that OPEC and Saudi Arabia are no longer the swing producers they were only two years ago,” said Gheit. To see the Oppenheimer analyst’s appearance on CNBC, click here.

LOW NATURAL GAS PRICES MAJOR CAUSE IN CLOSURE OF TWO ILLINOIS NUCLEAR PLANTS
Exelon Corp.’s recent retirement of two Illinois nuclear facilities may precipitate other plant closures as the trend of nuclear shutdowns continues, according to Fitch Ratings.

The planned shutdowns of Exelon’s Clinton and Quad Cities in central and northwest Illinois highlight difficult operating conditions for merchant generators due in large measure to low natural gas and energy prices amid sluggish demand, Fitch said. Nuclear units are also particularly vulnerable because of their high fixed operating and capital costs. Clinton will close on June 1, 2017 and Quad Cities on June 2018.

Both Quad Cities and Clinton have been cash flow negative for several years, and management had previously indicated closure was a strong possibility without a rebound in energy and capacity prices and passage of legislation in Illinois that would reward low carbon-emitting power plants. The situation came to a head when Quad Cities did not clear the 2019/2020 forward capacity auction and the potential Illinois legislation stalled.

Although Clinton did clear the Midwest independent System Operator (MISO) capacity auction, the prices were inadequate. The two nuclear facilities (three plants) have a strong operating record and provide nearly 2,500 MW of carbon-free capacity, Fitch said.

FERC ACCEPTS MEASURES ADDRESSING GAS-ELECTRIC RELIABILITY OF CALIFORNIA GRID THIS SUMMER The Federal Energy Regulatory Commission, which includes former Arkansas Public Service Chair Colette Honorable, accepted interim measures on Wednesday (June 1) to address the limited operability of the Aliso Canyon natural gas storage facility that could affect reliability and market operations in the California Independent System Operator (CAISO) grid this summer.

The order also directs FERC staff to convene a technical conference following implementation of the measures approved in the order to discuss the effectiveness of those tariff revisions and the need for additional and/or longer-term measures.

Last fall, Southern California Gas Co.’s Aliso Canyon facility experienced a large natural gas leak that significantly depleted the storage field. The leaking well was capped in February and the state of California prohibited injections of natural gas into the facility until completion of a comprehensive safety review. The facility serves gas-fired generators in the Los Angeles Basin and San Diego. Its limited operations are likely to stress the region’s gas system this summer when Southern California needs those generators to serve both peak loads and changes in load due to the variable nature of renewable generation.