FUEL PRICE FORECASTING WITH A FOCUS ON COALin.gov/iurc/files/3_Fuel Price Forecasting_Emily S...

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Energy Ventures Analysis 1901 N. Moore St. Arlington, VA 22209 (703) 276 8900 FUEL PRICE FORECASTING WITH A FOCUS ON COAL APRIL 25, 2017

Transcript of FUEL PRICE FORECASTING WITH A FOCUS ON COALin.gov/iurc/files/3_Fuel Price Forecasting_Emily S...

Page 1: FUEL PRICE FORECASTING WITH A FOCUS ON COALin.gov/iurc/files/3_Fuel Price Forecasting_Emily S Medine...Energy Ventures Analysis 1901 N. Moore St. Arlington, VA 22209 (703) 276 8900

Energy Ventures Analysis1901 N. Moore St. Arlington, VA 22209(703) 276 8900

FUEL PRICE FORECASTING WITH A FOCUS ON COAL

APRIL 25, 2017

Page 2: FUEL PRICE FORECASTING WITH A FOCUS ON COALin.gov/iurc/files/3_Fuel Price Forecasting_Emily S Medine...Energy Ventures Analysis 1901 N. Moore St. Arlington, VA 22209 (703) 276 8900

About Energy Ventures Analysis, Inc. (EVA)

EVA, Inc. is a management consulting firm for the U.S. energy industry and is focused on economic,financial and risk analysis for the electric power, coal, natural gas, petroleum, and renewable, andemissions sectors.

Since 1981, EVA has been publishing supply,demand and price forecasts as part of its FUELCASTsubscription service for these energy sectors.

EVA performs various analyses for an array ofclients that include:• power utilities,• fuel producers,• fuel transporters,• commodity traders,• regulators, and• financial institutions.

1Energy Ventures Analysis, Inc.

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U.S. COAL PRIMER

2Energy Ventures Analysis, Inc.

Page 4: FUEL PRICE FORECASTING WITH A FOCUS ON COALin.gov/iurc/files/3_Fuel Price Forecasting_Emily S Medine...Energy Ventures Analysis 1901 N. Moore St. Arlington, VA 22209 (703) 276 8900

Demand

3Energy Ventures Analysis, Inc.

• Power sector dominates demand for US coal

• Exports are an attractive market but only when US dollar is weaker than it is today

mm tons 2008 2009 2010 2011 2012 2013 2014 2015 2016

Electric Power Burn 1,040.4 930.8 970.4 932.0 822.5 857.1 850.3 736.6 670.6

Consumer stock change 2.9 28.7 (16.2) (2.4) 8.6 (42.8) (4.1) 40.2 (30.9)

Electric Power Receipts 1,043.3 959.5 954.2 929.6 831.2 814.3 846.3 776.8 639.7

Coke Ovens 22.4 15.2 21.1 22.1 20.9 21.1 21.7 19.5 16.5

Industrial/Commercial 59.9 50.9 49.1 47.8 44.8 45.0 45.3 40.3 34.1

Domestic Demand 1,125.7 1,025.5 1,024.4 999.4 896.8 880.4 913.3 836.6 690.2

Export metallurgical 42.5 37.1 56.1 69.0 68.2 61.2 57.6 44.6 40.5

Export steam 32.0 25.5 29.1 42.6 61.7 64.2 44.4 35.4 25.9

Total Exports 74.5 62.6 85.2 111.6 129.9 125.5 102.0 80.0 66.4

Total Demand 1,200.2 1,088.2 1,109.6 1,111.0 1,026.7 1,005.9 1,015.3 916.6 756.6

Page 5: FUEL PRICE FORECASTING WITH A FOCUS ON COALin.gov/iurc/files/3_Fuel Price Forecasting_Emily S Medine...Energy Ventures Analysis 1901 N. Moore St. Arlington, VA 22209 (703) 276 8900

Production

4Energy Ventures Analysis, Inc.

mm tons 2008 2009 2010 2011 2012 2013 2014 2015 2016

Northern Appalachia 135.2 126.1 129.1 131.2 124.5 121.7 132.0 114.8 101.9

Central Appalachia 233.5 194.9 184.1 182.7 147.2 127.6 116.6 90.4 66.6

Alabama 20.4 18.7 20.1 19.1 19.6 18.4 16.6 13.2 9.1

Appalachia Total 389.1 339.7 333.2 333.0 291.2 267.7 265.1 218.4 177.6

Illinois Basin 99.0 102.3 105.1 115.8 126.9 131.6 136.8 123.3 98.2

East Total 488.2 442.1 438.3 448.7 418.1 399.3 401.9 341.7 275.8

Powder River Basin 496.0 455.7 468.4 462.6 419.1 407.6 418.2 398.6 313.7

Rockies 81.5 74.9 70.8 74.5 74.1 71.5 70.9 58.5 47.1

Lignite 75.7 72.5 78.9 81.1 78.9 77.0 79.5 70.9 71.5

Southwest 24.0 22.4 20.5 20.0 20.1 20.9 18.9 18.7 13.9

Interior 2.0 1.6 1.6 1.8 1.6 1.6 1.4 1.9 2.7

West Total 679.1 627.1 640.3 639.9 593.7 578.5 588.8 548.5 448.9

Alaska 1.5 1.8 2.2 2.1 2.1 1.5 1.5 1.2 0.9

Anthracite 1.7 1.7 1.7 2.2 2.3 2.1 1.9 2.0 1.5

U. S. Coal Total 1,170.5 1,072.7 1,082.5 1,093.0 1,016.2 981.4 994.1 893.4 727.0

Imports 32.2 20.9 17.8 11.4 7.6 7.3 9.5 9.6 8.8

Waste Coal

Total Production 1,202.7 1,093.6 1,100.3 1,104.4 1,023.8 988.7 1,003.6 903.0 735.8

Page 6: FUEL PRICE FORECASTING WITH A FOCUS ON COALin.gov/iurc/files/3_Fuel Price Forecasting_Emily S Medine...Energy Ventures Analysis 1901 N. Moore St. Arlington, VA 22209 (703) 276 8900

Power Sector

5Energy Ventures Analysis, Inc.

• Takeaways• Electricity demand growth has disappeared

• Coal was the swing fuel in 2012, 2015 and 2016 because of low gas prices.

• Growth in renewables will eat into baseload generation (coal or gas)

0

500,000

1,000,000

1,500,000

2,000,000

2,500,000

3,000,000

3,500,000

4,000,000

4,500,000

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Generation by Fuel Type (Thousand MWH)

Coal NaturalGas

Nuclear Hydro Other

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Generation by Fuel Type (Market Share)

Coal NaturalGas

Nuclear Hydro Other

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Historical U.S. Steam Coal Prices

6Energy Ventures Analysis, Inc.

• In the last decade, coal prices have become quite volatile. • Impact on consumers is muted due to contract portfolios

$0.00

$10.00

$20.00

$30.00

$40.00

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$100.00

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$150.00

$160.00

$170.00

Jan-

05

May

-05

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$/short ton

NAPP 13,000 Btu, 4.5#SO2 FOB rail

CAPP 12,500 Btu, 1.6#SO2, FOB rail

ILLB 11,500 Btu, 5.2#SO2 FOB barge

Rockies CO 11,700 Btu, 1% Sul FOB rail

PRB 8,800 Btu, 0.8#SO2 FOB rail

Page 8: FUEL PRICE FORECASTING WITH A FOCUS ON COALin.gov/iurc/files/3_Fuel Price Forecasting_Emily S Medine...Energy Ventures Analysis 1901 N. Moore St. Arlington, VA 22209 (703) 276 8900

FORECASTING FUEL PRICES

7Energy Ventures Analysis, Inc.

Page 9: FUEL PRICE FORECASTING WITH A FOCUS ON COALin.gov/iurc/files/3_Fuel Price Forecasting_Emily S Medine...Energy Ventures Analysis 1901 N. Moore St. Arlington, VA 22209 (703) 276 8900

Integrated Forecasting Is Required Due To Relationship Between Fuels

• Forecast of prices must reflect supply/ demand balances in each market (e.g., power, industrial, export, etc.)

• Forecasts often require iterations to reflect the demand/supply response to different price levels.

8Energy Ventures Analysis, Inc.

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Short- and Long-Term Price Forecasts

• Long-Term forecasts typically reflect Short-Term price outlooks for the first few years and Long-Term outlooks for the balance of period. Both Short- and Long-Term Forecasts are influenced by market fundamentals (i.e., supply and demand).

• In addition, Short-Term forecasts are influenced by:• Relevant market developments• Weather• Stockpile levels• Forward price curves

9Energy Ventures Analysis, Inc.

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SHORT-TERM COAL PRICE FORECASTING

10Energy Ventures Analysis, Inc.

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• China partially reverses production cuts

• More coal plant retirements are underway

• Atypically warm winter

• Credit markets reopen for coal companies easing potential coal supply contraints

• Cyclone Debbie

• Trump gets elected

11

Relevant Coal Market Developments

Energy Ventures Analysis, Inc.

Page 13: FUEL PRICE FORECASTING WITH A FOCUS ON COALin.gov/iurc/files/3_Fuel Price Forecasting_Emily S Medine...Energy Ventures Analysis 1901 N. Moore St. Arlington, VA 22209 (703) 276 8900

Winter Was 2nd Warmest On Record Since 1986

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(400)

(300)

(200)

(100)

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1996

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2016

* Normal: 30 Year Avg. HDD (1986-2016) Dec-Feb

Weather: HDD deviation from the normal*

2017

2,400

De

via

tio

n

Colder (Dec-Feb)

Warmer (Dec-Feb)

0

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Weather: Ranked HDD (1986-2017)

2017 – 2nd

warmest

Energy Ventures Analysis, Inc.

Page 14: FUEL PRICE FORECASTING WITH A FOCUS ON COALin.gov/iurc/files/3_Fuel Price Forecasting_Emily S Medine...Energy Ventures Analysis 1901 N. Moore St. Arlington, VA 22209 (703) 276 8900

Winter Weather Is Key For Coal Burn As High Gas Storage Level Keeps Pricing Pressure In The Near Term

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Weather: HDD deviation from the normal*

2017

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via

tio

n

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Warmer (Dec-Feb)

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5-Year Coal Range (2012-2015)

Coal Generation (GWH)

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2016

2014

2017

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Gas Storage level (BCF)First week of MarchYear-2014

Year-2015

Year-2017

Year-2016

$1.00

$2.00

$3.00

$4.00

$5.00

$6.00

$7.00

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Henry Hub Gas price ($/MMBtu)

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2016

2017

Energy Ventures Analysis, Inc.

Page 15: FUEL PRICE FORECASTING WITH A FOCUS ON COALin.gov/iurc/files/3_Fuel Price Forecasting_Emily S Medine...Energy Ventures Analysis 1901 N. Moore St. Arlington, VA 22209 (703) 276 8900

Higher Gas Prices In Late 2016 Lead To An Increase In Coal Burn And Reduction In Stocks

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Stocks (mmt)

Days of Avg. Burn (left)

3-Month Burn (mmt)

Coal Stockpiles (mmt)Electric Power Sector

Days

84 Days

163 mm tons

Energy Ventures Analysis, Inc.

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Coal Gained Market Share As Henry Hub Gas Crossed $3.50/MMBtu In December 2016

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$1.80

$2.30

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$3.80

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40%Ja

n

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Coal vs Gas share of Generation (%)

Henry Hub

price (right)

36% coal

27% gas

27%-coal

32%-gas

Energy Ventures Analysis, Inc.

Page 17: FUEL PRICE FORECASTING WITH A FOCUS ON COALin.gov/iurc/files/3_Fuel Price Forecasting_Emily S Medine...Energy Ventures Analysis 1901 N. Moore St. Arlington, VA 22209 (703) 276 8900

Near-Term Coal Plant Retirements

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7,6356,164

19,480

11,212

7,795

5,838

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Coal Plant Retirements (MW)2016-2019 based on announcements

2017 Announced retirementsRetirement decision

Primary Coal Plant Unit MW Economic MATS Haze Rule BART State

CAPPYorktown 1-2 326 XROVA 1-2 209 XBrayton Point 1-3 1,100 X

PRBWelsh 2 528 XGRDA 1 490 X

NAPPBL England 2 155 XCayuga 1-2 306 XMercer 1-2 648 XHudson 2 608 X

ILB Paradise 1-2 1,224 X

Rockies

Reid Gardner 4 225 XCherokee 4 352 XNaughton 3 330 XValmont 5 186 X

Other CoalSan Juan 2-3 815 XStanton 1 189 XAll other 105 X

7,795 3,544 1,550 1,018 1,145 538

Energy Ventures Analysis, Inc.

Page 18: FUEL PRICE FORECASTING WITH A FOCUS ON COALin.gov/iurc/files/3_Fuel Price Forecasting_Emily S Medine...Energy Ventures Analysis 1901 N. Moore St. Arlington, VA 22209 (703) 276 8900

Coal Burn Forecasts By Region Are A Function Of Forecast Coal Generation By Plant

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407358 322

376 360 334 326

121104

93

109 111110 112

106

8887

95 101100 100

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39

32

27 2927 29

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38 3533 32

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84 7978 77

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PRB ILLB

NAPP CAPP

SAPP Rockies

Lignite/other

Coal Burn (mmt)Electric Power Sector

Energy Ventures Analysis, Inc.

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Other markets for coal affect pricing . China curtailed domestic production increasing import demand. As a result, met coal prices jumped. After falling, cyclone Debbie struck and prices jumped again.

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Met Coal

Steam Coal

Coal Exports (mm tons)

$-

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Cal

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8

Australian Prem. HCC

CIF ARA [6,000kcal/kg NAR]

Benchmark Prices ($/mt)

Forecast

Forecast

Energy Ventures Analysis, Inc.

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Summary Of EVA Q1 2017 Short-Term Coal Supply And Demand Forecast

19

US Coal Supply (mmt) 2016 2017 2018 2019 2020

Northern Appalachia 101.9 112.6 115.8 115.4 115.0

Central Appalachia 66.5 74.1 74.6 71.4 71.6

Southern Appalachia 9.1 12.5 12.7 13.1 13.2

Illinois Basin 98.2 117.2 119.3 121.0 122.0

Powder River Basin 311.9 362.3 365.0 346.5 338.9

Rockies 47.1 51.6 51.6 49.4 48.6

Lignite and Other 90.8 94.1 90.0 89.3 88.3

U.S. Production 725.4 824.4 829.1 806.1 797.6

Import, PC, Waste 24.0 19.7 20.5 21.4 22.8

Total Supply 749.5 844.1 849.6 827.5 820.4

-Producer stock & unaccounted (12.0) 1.2 1.2 1.2 1.2

US Coal Demand (mmt) 2016 2017 2018 2019 2020

Electric Burn 676.0 748.7 735.6 704.2 699.1

Stockpile Change (30.6) (37.0) (12.0) - -

Electric Receipts 645.4 711.7 723.6 704.2 699.1

Coke Ovens 16.3 16.9 16.6 16.6 16.5

Comm./Indust. 34.3 32.7 31.9 31.5 31.1

Domestic Receipts 696.0 761.3 772.1 752.3 746.6

Export Metallurgical 40.5 48.0 45.3 42.7 40.0

Export Steam 25.0 33.6 30.9 31.3 32.6

Total Exports 65.5 81.6 76.3 73.9 72.6

Total Demand1 761.5 842.9 848.4 826.2 819.2

1 Includes Import, PC, WC 24.3 22.9 19.7 21.4 22.8

Energy Ventures Analysis, Inc.

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Short-Term Coal Price Forecast Is Influenced But Not Determined By Forward Price Curves

20

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$45.00

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4 1 2 3 4 1 2 3 4 Cal Cal Cal

2015 2016 2017 2018 2019 2020

EVA Forecast

Market Forward

CAPP ($/ton)CSX-Big Sandy: 12,500 1.6#

$20.00

$25.00

$30.00

$35.00

$40.00

$45.00

$50.00

$55.00

$60.00

4 1 2 3 4 1 2 3 4 Cal Cal Cal

2015 2016 2017 2018 2019 2020

EVA Forecast

Market Forward

NAPP ($/ton)Pitt MGA: 13,000 4.5#

$25.00

$27.00

$29.00

$31.00

$33.00

$35.00

$37.00

$39.00

$41.00

$43.00

4 1 2 3 4 1 2 3 4 Cal Cal Cal

2015 2016 2017 2018 2019 2020

EVA Forecast

Market Forward

ILB ($/ton)Barge-WKY: 11,500 5.2#

$8.00

$9.00

$10.00

$11.00

$12.00

$13.00

$14.00

4 1 2 3 4 1 2 3 4 Cal Cal Cal

2015 2016 2017 2018 2019 2020

EVA Forecast

Market Forward

PRB ($/ton)BN/UP-Gillette: 8,800 0.8#

MORE COAL PLANT RETIREMENTS ARE UNDERWAY

Energy Ventures Analysis, Inc.

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• Trump rescinded Stream Protection Rule (Feb 16)

• Trump nominee Scott Pruitt confirmed as EPA Administrator (Feb 17)

• Broad “Energy Independence Executive Order” with extra focus on Clean Power Plan (March 28)

• DOJ Motion to Hold ELG Compliance in Abeyance (March 28)

• Withdrawal of Federal Plan for CPP Compliance published in Federal Register (April 3)

• EPA motion for continuance of oral arguments to give the appropriate officials adequate time to fully review the 2015 ozone NAAQS. (April 7)

• Administrative Stay by the EPA of the Effluent Limitation Guidelines (April 12)

• Department of Energy initiated 60 day study on impact of renewable energy mandates and subsidies on baseload generation. (April 14)

21

Trump Administration Actions to Date

Energy Ventures Analysis, Inc.

Page 23: FUEL PRICE FORECASTING WITH A FOCUS ON COALin.gov/iurc/files/3_Fuel Price Forecasting_Emily S Medine...Energy Ventures Analysis 1901 N. Moore St. Arlington, VA 22209 (703) 276 8900

LONG-TERM COAL PRICE FORECASTING

22Energy Ventures Analysis, Inc.

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Long-Term Integrated Price Forecasting for the Power Sector

23Energy Ventures Analysis, Inc.

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Key Long-Term Assumptions For Coal Price Forecasting

24Energy Ventures Analysis, Inc.

Demand

• Electricity demand growth• Installed capacity`

• Renewables• Retirements (coal and nuclear

of particular interest)• Additions

• Regulatory requirements• Other domestic demand (industrial

and met)• Export

• Type (Met and Thermal)• Export Terminal Capacity• Relative strength of the U.S.

dollar• Gas prices

• Supply

• Production capacity

• Production costs

• Mining regulations

• Reserve profiles

• Health of the coal industry

Page 26: FUEL PRICE FORECASTING WITH A FOCUS ON COALin.gov/iurc/files/3_Fuel Price Forecasting_Emily S Medine...Energy Ventures Analysis 1901 N. Moore St. Arlington, VA 22209 (703) 276 8900

Key Long-Term Assumptions For Natural Gas Price Forecasting

25Energy Ventures Analysis, Inc.

Demand

• Residential/Commercial

• Existing industrial

• Power

• LNG exports

• Pipeline exports to Mexico

• New industrial facilities

• Fleet conversions

• Supply

• Shale expansion and technology

• Decline of off-shore production

• Decline of conventional production

• Infrastructure status and improvements

Page 27: FUEL PRICE FORECASTING WITH A FOCUS ON COALin.gov/iurc/files/3_Fuel Price Forecasting_Emily S Medine...Energy Ventures Analysis 1901 N. Moore St. Arlington, VA 22209 (703) 276 8900

Closing Thoughts On Long-Term Forecasts

26Energy Ventures Analysis, Inc.

• Coal vs Gas Price Forecasts • Coal is purchased typically through staggered multi-year contracts which

mutes coal price volatility actually paid by generators• Gas is purchased typically day ahead or same day which exposes

generators to volatile pricing absent hedging. Gas price forecasts do not include hedging costs.

• These factors are hard to consider but significant to dispatch analysis which determines plant performance

• IRP analyses do not appear to reflect these different profiles

• Stochastic versus Deterministic Modeling• Stochastic modeling addresses some of the uncertainty in price forecasts

through probability distributions of possible outcomes subject to constraints defined above

• Stochastic modeling does not replace the need for “designed scenario analysis” to capture either binary outcomes or specific scenarios that merit consideration

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Emily Medine

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