PIRA Energy Group's Weekly Natural Gas, Power and Coal Market Recap for the Week Ending September 29th, 2013

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Asia Spot Prices Stay Put as Less Liquidity Narrows Scope of Potential Buyers, while Large Shifts in European Power Supplies

PIRA Energy Group

PIRA Energy Group

Fundamentals favor upside price resistance ahead without the help of below-normal temperatures in the coming months.

NYC-based PIRA Energy Group reports that Asia spot prices stay put as less liquidity narrows scope of potential buyers. In the U.S., gas fundamentals are far from bullish. In Europe the sizable storage deficit and the threat of higher winter spot gas prices are a cause for concern. Specifically, PIRA’s analysis of natural gas market fundamentals has revealed the following:

Asia Spot Prices Stay Put as Less Liquidity Narrows Scope of Potential Buyers

A thinner spot market in 2013 has led to a higher weighted average premium on Asian spot prices over oil-indexed levels. Less liquidity is narrowing the buyers to premium markets, where buyers are either short due to nuclear outages or are backing out oil. The pool of buyers is limited in the mid-$15s with the outlook for contract prices for the next three months below this level. Distressed cargos from Mexico will be in the offing in coming weeks in the wake of a hurricane which destroyed a key LNG off-take line from Manzanillo.

Gas Fundamentals Far From Bullish

Fundamentals favor upside price resistance ahead without the help of below-normal temperatures in the coming months. Higher year-on-year gas prices, along with weak weather-adjusted electricity loads, should lead to gas power sector losses that will offset, if not exceed, projected industrial demand growth. Meanwhile, net trade losses that are set to narrow and accelerating production out of Appalachia should keep U.S. supply well in the black into 2014.

The Sizable Storage Deficit and the Threat of Higher Winter Spot Gas Prices Are a Cause For Concern in Europe

Despite a record rate of gas injections during the third quarter, European stocks are still well below last year and well below normal. However, underlying gas demand continues to recede and if above normal or even normal temperatures transpire this may lead to a decrease in spot prices.

NYC-based PIRA Energy Group believes that there are large shifts in European power supplies. In the U.S., U.S. power sector coal inventories continue decline. Specifically, PIRA’s analysis of electricity and coal market fundamentals has revealed the following:

Large Shifts in European Power Supplies

The large changes in the European stacks appear so far predominantly tied to short-term factors, rather than structural ones. The short-term factors include a lack of water in both the Nordic and Alpine regions, which have triggered a major surge in German power exports. Germany’s reported renewable generation also disappointed this month, with utilization of wind turbines and solar panels reported at multi-year lows. Among the long-term factors, retirements and the erratic availability observed among German coal units are emerging structural trends that need to be watched more carefully.

U.S. Power Sector Coal Inventories Continue Decline

U.S. power sector coal inventories continue to decline year-on-year as of end-September, though they remain at comfortable levels heading into the fall shoulder season. NAPP (Northern Appalachian) and PRB (Powder River Basin) stocks have fallen by the largest proportion. We expect stocks will seasonally build over the next two months given declining power sector load levels.

Cape Rates Surge on Chinese Trading Activity, Prices Likely Sustainable through 4Q13

Demand from Chinese iron ore trading and strong economic data from China has boosted the recovery in Cape freight rates, which rapidly exceeded the 2011 rate movements they were previously tracking. Rates are currently at multi-year highs and signs of strengthening market fundamentals point toward a continued strong Cape market in 4Q13 despite the chance of a pullback from Chinese traders seeking a floor in iron ore prices.

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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