PIRA Energy Group's Weekly Natural Gas, Power and Coal Market Recap for the Week Ending January 13th

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Petrobras Steps Up LNG Procurement and Competes with Asian Buyers while International Coal Prices Fall Week-on-Week

PIRA Energy Group

PIRA Energy Group

Petrobras is stepping up LNG procurement and competing with Asian buyers.

NYC-based PIRA Energy Group reports that Petrobras is stepping up LNG procurement and competing with Asian buyers. In North America the gas market’s weather fixation is understandable following last winter’s heating degree day collapse. In Europe, PIRA believes that the next wave of weather-related demand growth is mostly built into day-ahead prices. Specifically, PIRA’s analysis of natural gas market fundamentals has revealed the following:

Natural Gas Markets

*Petrobras Steps Up Procurement and Competes With Asian Buyers

Simmering on the back burner of demand outside Asia in 4Q12, South America, and more specifically Brazil, has been battling drought-like conditions for months in key areas. This has resulted in a surge of spot LNG imports to compensate for diminished hydro power in the two regions that have LNG import facilities. Now, as the country enters its “rainy period,” Petrobras is stepping up procurement in 1Q13 and emerging as a bona fide competitor to Asian buyers in the face of much weaker rainfall than needed to replenish hydro stocks. The first quarter is normally the low period for Brazilian LNG demand.

*Next Wave of Weather-Related Demand Growth Is Mostly Built into Prices

The next wave of weather-related demand growth appears to be cresting around the 19th or 20th of January. The key question in the short term is whether or not such an increase is already built into day-ahead prices. The short answer is mostly, as the market appears to be well aware of where storage levels reside (on the high side outside of France), and how much spare production capacity producers still possess, particularly when spot prices reach the low end of the band of contract gas prices.

*Gas Market Is Understandably Fixated on Weather

The gas market’s weather fixation is understandable following last winter’s heating degree day collapse, more of the same last month, and expectations that January will be acutely warm as well. Some might even begin to wonder if non-heating fundamentals still matter. A reasonable answer would be that heating loads will substantially lose their market clout about two months from now. Even changes in the outlook for gas trade could have a major bearing on U.S. gas balances when the heating season winds down.

PIRA Energy Group also reports that international coal prices fell week-on-week. In Europe, Spain’s plan to close financial deficits in electricity markets will have far-reaching consequences. Specifically, PIRA’s analysis of electricity and coal market fundamentals has revealed the following:

Coal Markets

*International Coal Prices Fall Week-on-Week

Coal prices lost ground last week, largely because of a sizeable drop on Monday. The declines were more severe in the Atlantic Basin than in the Pacific Basin, with both API#2 (Northwest Europe) and API#4 (South Africa) falling by more than FOB Newcastle (Australia). Mild weather in Europe and the U.S., coupled with strong supply availability, has depressed Atlantic Basin prices relative to the Pacific Basin, in line with PIRA’s expectations.

Power Markets

*Spanish Plan to Close Financial Deficits Will Have Far-Reaching Consequences

On January 1, Spain saw the introduction of a much-awaited (and controversial) plan to close the financial deficits created by the combination of booming renewable generation and artificially lower electricity tariffs, with far reaching consequences on power prices, and potentially, the Spanish electricity market itself. All electricity generation is subject to a flat tax of 7%, in addition to specific taxes on fuels for power generation, spent nuclear fuel, and radioactive waste from nuclear power generation. Even a fee for the use of inland waters for the production of electricity was introduced.

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.

Click here for additional information on PIRA’s global energy commodity market research services.

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Jorge Martinez
PIRA Energy Group
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