New York, NY (PRWEB) June 05, 2012
NYC-based PIRA Energy Group reports that gas prices in the U.S. rallied strongly in May, while the European spot gas price fell rapidly. Meanwhile, the LNG spot market continues to expand and transform. Specifically, PIRA’s analysis of natural gas market fundamentals has revealed the following:
*Natural Gas Price Rallies in May: A month ago, many were applying finishing touches to gas price obituaries and eulogies bemoaning how the "winter that wasn't" had elevated storage levels to insurmountably bearish levels. Yet before the ink was dry, the NYMEX June gas contract started a powerful rally that lasted almost the entire month of May. Henry Hub cash prices also rallied strongly, but price gains elsewhere were more muted relative to the benchmark, reflecting the need for low enough gas prices to keep storage injections below year-ago levels.
*U.S. Natural Gas Stock Build Meets Expectations: For the week ending May 25, the EIA reported a gas storage injection that was in line with market expectations. However, the storage build was below the five-year average for the Reference Week, continuing a string of below-normal injections stretching back to late April. Above-normal temperatures in most of the South helped gas-fired electricity generation in the Eastern Grid and ERCOT to increase week on week. The warmer weather also led to a decline in residential/commercial heating loads. Net supply was essentially flat from the prior week.
*European Natural Gas Spot Price Descends Rapidly in May: The recent rapid descent of spot prices is beginning to outpace PIRA's bearish outlook through September. Two key factors dominate the European landscape: a bearish outlook for demand, and the bullish potential for a limited number of suppliers to remove supply from the market. Removal of supply could happen through any one of a number of means, including lower production, diversions of LNG cargos, or higher domestic storage injections.
*Dismal Gas-Fired Electricity Generation Leads to Gas and Power Price Disconnects: Gas-fired electricity generation continues to be dismal, with double-digit losses in every market across Europe and load factors plummeting. Dispatching dynamics show that the European power market has enough flexibility to meet demand. The low utilization of gas-fired capacity has led to disconnecting gas and power prices in many hubs, with the U.K. and the southern markets (Italy and Spain) as exceptions.
*Global LNG Spot Market Continues Transformation: Even with a seasonal downturn in Asian LNG demand in March and April, the spot market continues to expand and transform itself as a direct function of a much weaker European market and broader storage issues that will continue to plague top Asian buyers. Well-advertised shipping constraints do not appear to be affecting the volumes of inefficient cross-basin flows. These flows now involve re-exports from North and South America to Asia, some of which were likely originally sourced from Middle East suppliers.
The information above is part of PIRA Energy Group's weekly Energy Market Recap, which alerts readers to PIRA’s current analysis of energy markets around the world as well as the key economic and political factors driving those markets.
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