PIRA Energy Group's Weekly Natural Gas, Power and Coal Market Recap for the Week Ending January 20th

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LNG Supplies Could Tighten while International Coal Prices Decline Week-on-Week

PIRA Energy Group

PIRA Energy Group

The potential for tighter LNG supplies will be a major theme in the months to come, as the market waits on Angola and Algeria to fire up new production capacity.

NYC-based PIRA Energy Group believes that LNG supplies could tighten in the months to come. In the U.S., the weekly gas stock draw was larger than expected. In Europe, cold weather boosted demand, while the Algerian situation tightened gas supplies. Specifically, PIRA’s analysis of natural gas market fundamentals has revealed the following:

Natural Gas Markets

*LNG Supplies Could Tighten

The potential for tighter LNG supplies will be a major theme in the months to come, as the market waits on Angola and Algeria to fire up new production capacity. Existing suppliers in Egypt and Indonesia will also see availability continue to dwindle, with Trinidad threatening to join the list. Throw in official and unofficial disruptions in Yemen and Nigeria last year that are sure to repeat this year, and the result is LNG spot prices that reflect the potential for reduced length relative to the prior two years.

*Weekly Gas Stock Draw Larger Than Expected

For the week ending January 11, the EIA reported another gas stock withdrawal that was well above the consensus estimate. The draw pushed the year-on-year storage deficit higher, and underpinned an immediate bullish jump in the nearby NYMEX contract. Temperatures rose nationwide, causing a week-on-week drop in gas-weighted heating degree days, but this was partially offset by a post-holiday rebound in industrial gas demand.

*Cold Weather Boosts Demand, While Algerian Situation Tightens Supply

Two bullish items will keep the market firm through the rest of the month. Colder-than-normal weather will propel demand, while supply problems in Algeria will keep supply tighter, with most of the impact likely to be on LNG markets. For now, plunging temperatures forecast for the U.K. are having a greater effect on spot prices than the potential loss of Algerian volumes at the In Amenas area.

NYC-based PIRA Energy Group also reports that international coal prices declined week-on-week. In North America, eastern power market prices weakened month-to-month, while Europe’s colder weather led to stronger day-ahead electricity prices. Specifically, PIRA’s analysis of electricity and coal market fundamentals has revealed the following:

Coal Markets

*U.S. Coal Stocks Remain Above Normal Levels

Weak trade dynamics are offsetting the effects of stronger natural gas prices, while stock declines have yet to gain traction. Natural gas pricing still undercuts Appalachian and import coals. Coal stocks remain well above normal levels given present fuel substitution. The near-term weather outlook is a positive risk, boosting heating loads. Producer supply cuts continue to gain momentum, but will need to be material given weak demand fundamentals. Economic risks remain a concern.

*International Coal Prices Decline Week-on-Week

The coal market moved broadly lower last week, despite very cold weather conditions in both China and Europe. The robust seasonal demand growth has been offset by continued high supply availability. API#4 (South Africa) lost the most ground last week. API#2 (Northwest Europe) and FOB Newcastle (Australia) prices also declined.

Electricity Markets

*Still Waiting for Winter

December spot on-peak power prices weakened from November levels in most eastern power markets, as mild weather limited heating loads, baseload units returned from fall maintenance outages, and gas prices eased. The steepest declines occurred in the Northeast, which had been November’s strongest market. The factors responsible for weakening on-peak prices also dragged off-peak prices lower.

*Colder Weather Drives Stronger Day-Ahead Prices

Last week featured stronger day-ahead prices, especially in France, driven by significantly colder weather. Based on RTE provisional figures, French average daily demand reached a two-year high. The year-on-year gains in demand have been largely met through an equivalent change in the net exporting position, with power flows increasing from all surrounding markets, including Italy, the U.K., and Spain, where gas-fired generation is in a marginal position and has been affected to some degree by Algerian supply issues.

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.

PIRA Energy Group
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New York, NY 10016
(212) 542- 1677

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Jorge Martinez
PIRA Energy Group
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