Study on the relation between oil, natural gas and coal prices



International energy unit heat price trend change analysis

At present, the pricing mechanisms of coal, oil and natural gas in the energy market are different, and the actual price manifestations are also diverse. The types of energy are different, and the units of measurement are different, such as coal calculated by tons, crude oil calculated by barrels, and gas energy such as natural gas calculated by cubic meters or million British heat. Since all kinds of energy have the properties of energy and can be converted into heat under certain conditions, the heat contained in each energy is selected as a unified unit of accounting, and the price-comparison relationship between different energy categories can be analyzed.

1, oil, natural gas, coal unit heat price analysis

In order to calculate the price-comparison relationship, all kinds of energy are uniformly converted into the form of "standard coal" valuation. Among them, standard coal is measured by the Newcastle NEWC thermal coal price, one of the international benchmark coal prices. Taking Newska NEWC thermal coal as the benchmark, its calorific value is about 5,500 kcal/kg, and the calorific value of oil is 9000-11,000 kcal/kg, calculated by the average heat, so the calorific value of a ton of oil is equivalent to about 1.82 tons of benchmark coal. A barrel of crude oil is about 136 kilograms of crude oil, so a barrel of crude oil has about the same heat as 0.2473 tons of benchmark coal. Natural gas is often calculated in units of mmBTU heat, of which 5500 kcal is approximately 0.021811 mmBTU. In terms of specific measurement, the Brent DTD crude oil spot price for oil is selected, and the Dutch TTF spot price for natural gas is selected, and oil, natural gas and coal are uniformly converted into the form of "benchmark coal" pricing. After the energy is converted according to the benchmark coal heat, the price trend of unit heat of oil, natural gas and coal during 2020-2022 is shown in Figure 1.

First, oil, gas and coal unit heat price fluctuations have a strong consistency, especially oil and coal. Secondly, the price of coal per unit calorific value is significantly lower than that of oil and gas. In general, the price of oil per unit calorific value is > natural gas price > coal price before August 2021, and the price of natural gas per unit calorific value is > oil price > coal price after August 2021. The reason behind this is that since August 2021, global natural gas prices have repeatedly reached new highs under the dual role of tight supply and strong demand. On the supply side, Europe consumed more natural gas reserves in the winter of 2020 than in previous years, but due to the impact of the new coronavirus epidemic, global natural gas production in 2020 declined, and natural gas reserves were not replenished in time. Natural gas production in different parts of the world has also suffered disruptions and disruptions, and natural gas supply side reserves are insufficient. On the demand side, the recovery of the epidemic has pushed up the demand for natural gas, and in order to cope with global warming, many countries have launched carbon neutral goals, and began to choose natural gas as a transitional fuel to replace the use of oil and coal, which has increased the recent consumption demand for natural gas. At this point, the high price of natural gas worldwide further increases the operating costs of enterprises, so that these cost-intensive enterprises can not bear, or adopt production reduction or even production suspension of response measures. The dual effects on the supply and demand side have pushed natural gas prices to historic highs. In this period, from the perspective of the global market, it is mainly the shortage of natural gas, which drives the tension of crude oil, and directly leads to the continuous shortage of thermal coal and coking coal, and the price has reached a new high. The rise in oil and coal prices will further push up natural gas prices. On the one hand, due to the pricing mechanism of natural gas linked to oil prices, on the other hand, the replacement of natural gas by coal for power generation requires the purchase of more carbon emission allowances, and expensive carbon emission allowances will encourage energy companies to use natural gas again, exacerbating the shortage of natural gas.

Since February 2022, global energy prices have continued to rise due to the Russia-Ukraine situation. Russia plays a key role in global energy supplies, supplying about 40 per cent of the EU's imported gas and 30 per cent of its imported crude oil. The European energy market is difficult to get rid of the import dependence on Russia in the short term, and the escalation of the situation between Russia and Ukraine will further aggravate the market expectation of international oil and gas supply shortage. In order to cope with the shortage of natural gas and ensure their own energy security, in extreme cases they may purchase a large number of natural gas spot, which will exacerbate the tight supply of natural gas in Europe, and natural gas prices may break through the record high. In terms of oil, in the short term, the crude oil supply concerns caused by the geopolitical situation are temporarily difficult to ease, even if Russia does not cut off supply, oil prices will remain high under the contradiction of supply and demand mismatch; In addition, due to the long development and production cycle of traditional oil and gas assets, the future growth of OPEC's total crude oil production capacity is still hindered, and the global energy transition makes the investment of international oil companies more inclined to low-carbon resources, the repair potential of crude oil production capacity is insufficient. Due to the significant price advantage of coal, in order to cope with the possible energy crisis, Europe is expected to rely more on coal to provide energy supply, and the proportion of coal consumption may be increased; However, on the supply side, the railway transportation capacity to the Far East and the port transfer efficiency restrict Russian coal exports to the Far East, and the trans-Eurasian railway construction period is longer, so even if the Russian coal exports to Europe are reduced because of the EU sanctions, the coal planned to be shipped to Europe will not be all shipped to the Far East. Taken together, these risk factors lead to the risk premium on energy prices remaining high for some time.

2, oil, natural gas, coal unit heat price ratio analysis

We compare the average price per unit heat of oil, natural gas and coal and their price ratios in 2020-2022, as shown in Table 1 and Figure 2. First, spot prices for oil, gas and coal have soared, especially for natural gas. Secondly, from the point of view of unit heat price, after converting oil and natural gas according to the heat of benchmark coal, the ratio of unit heat price of oil and benchmark coal is declining, while the ratio of natural gas and benchmark coal is rising significantly. The average unit heat price of oil in 2020 is significantly higher than that of natural gas and coal, while the average unit heat price of natural gas in 2021 and 2022 is higher than that of oil and coal. From the point of view of the growth rate of unit heat price, natural gas has the largest growth rate, and the growth rate has the largest change, followed by coal, and finally oil.

Considering the soaring price of natural gas during the European gas shortage in 2021, the ratio of unit heat prices of oil, natural gas and coal before and after August 2021 is further compared, as shown in Figure 3. Taking the unit heat price of coal as the benchmark for comparison, the ratio of unit heat price of natural gas to coal has significantly changed around August 2021, increasing from 1.50 to 3.16, with a change range of 110.67%; The ratio of unit heat price of petroleum and coal decreased from 2.66 to 1.73, with a change range of -34.96%. This shows that the soaring price of natural gas in Europe in 2021 has changed the ratio relationship of unit heat prices of oil, natural gas, coal and other energy sources, and also has an impact on the structural changes of the energy market.

3, oil, natural gas, coal unit heat price growth analysis

The growth rate of unit heat prices of oil, natural gas and coal during 2020-2022 is shown in Figure 4. The growth rate of oil and coal unit heat prices remained stable overall, but the growth rate of oil unit heat showed large fluctuations in March 2020, due to the COVID-19 outbreak and the breakdown of the OPEC production reduction alliance. The growth rate of natural gas unit heat price is less stable, more volatile than oil and coal, and the frequency of large fluctuations is also higher.

Compared with the other two energy sources, coal has the lowest unit heat price and relatively stable growth rate. In terms of chemical composition, coal is almost entirely composed of carbon atoms, which is more suitable for use as a molecular skeleton of chemical synthetic materials from the perspective of atomic transformation, while oil and natural gas contain more hydrogen atoms and are more suitable for use as fuel components. Due to the different hydrogen content, the energy density of oil and gas is significantly higher than that of coal, which is about three times that of the latter. On the whole, oil and natural gas are more suitable as fuels, and coal is more suitable as chemical raw materials. From the downstream use of oil and gas, the proportion of fuel consumption is more than 80%, and the proportion of materials is only 15%-20%. Therefore, the energy attribute determines the listed price of oil, natural gas and coal, and also doomed coal to have a greater advantage in price.

4, oil, natural gas, coal unit heat price difference analysis

The price difference between oil, gas and coal per unit heat in 2020-2022 is shown in Figure 5. Among them, the price difference of oil and coal unit heat is measured by "oil unit heat price - coal unit heat price"; The price difference between natural gas and coal per unit heat is measured as "natural gas per unit heat price - coal per unit heat price". The price difference between oil and coal has mostly remained at 0.1-0.2 USD /5500 kcal, and the price difference has fallen all the way in early 2020, because the collapse in oil prices caused by the sharp decline in oil demand has driven the price of oil unit heat below 0.1 USD /5500 kcal. The price difference between natural gas and coal remained within $0.20/5,500 kcal until August 2021, but after August 2021, the level of the spread soared, reaching an all-time high in December, and since then the level of the spread has fallen, but remains high. Since February 2022, affected by the rising geopolitical tensions between Russia and Ukraine, international energy prices have skyrocketed, and the volatility of gas and oil prices at high levels has also made the price difference between them and coal continue to expand, and there is a trend of further expansion.