The tanker market is in the midst of a supply surge ahead of new liquefaction from next year. Until that new supply begins to roll out from 2H14 from Australia and Papua New Guinea, we should expect a much weaker market for spot tankers.
New York, NY (PRWEB) October 09, 2013
NYC-based PIRA Energy Group reports that LNG tanker is set to receive rush of new supply. In the U.S., regional prices largely tracking benchmark Henry Hub. In Europe, the LNG contract/storage relationship becomes central to European supply outlook. Specifically, PIRA’s analysis of natural gas market fundamentals has revealed the following:
LNG Tanker Set to Receive Rush of New Supply
The tanker market is in the midst of a supply surge ahead of new liquefaction from next year. Until that new supply begins to roll out from 2H14 from Australia and Papua New Guinea, we should expect a much weaker market for spot tankers. But what should happen in LNG shipping often does not. After probably the weakest year in modern LNG shipbuilding history, in which a single vessel was delivered in 2012 (boosting rates to never seen before highs last year, combined with nuclear outages in Japan), some 10 vessels have been delivered through September and 13 more are on the books for 4Q, which should have a mitigating effect on relatively high LNG spot charter day rates.
Regional Prices Largely Tracking Benchmark Henry Hub
The resiliency of prices in general, along with narrow basis differentials at most locations, highlights the increased integration of the U.S. pipeline network. The build-out in storage has also lessened regional dislocations, notwithstanding the struggles to clear supply out of Appalachia. Some other notable exceptions remain, starting with capacity issues surrounding the New England market. Meanwhile, prices in western Canada have also struggled in the wake of a new toll agreement put in place in July.
LNG Contract/Storage Relationship Becomes Central to European Supply Outlook
As the weather turns colder, a core feature of the market will be the relationship between storage levels and LNG supply. As we will discuss more at the PIRA Seminar on Oct. 10 and 11, the storage deficit in Europe and the lack of LNG imports in Europe this year are closely connected and will be in the months ahead. Europe has been importing only about 33% of the LNG it possesses under contract.
NYC-based PIRA Energy Group reports that French nuclear and wind availability underpin French prices. In the U.S., SoCal peak met without breaking a sweat. Specifically, PIRA’s analysis of electricity and coal market fundamentals has revealed the following:
French Nuclear and Wind Availability Underpin French Prices
The recent poor operational performance of the French nuclear fleet, together with disappointing wind generation, has been underpinning French day-ahead prices. As a result of these short-term factors, French baseload November contract prices have moved higher relative to Germany. However, it should be remembered that EDF targeted healthy output growth this year, while typically wind output is higher during 4Q. In spite of short-term factors, the French supply side is structurally stronger, albeit less flexible to face sudden weather-related demand or export surges.
Western Grid Market Overview: SoCal Peak Met Without Breaking a Sweat
Widespread heat in early September sustained loads near late August levels yielding the highest on-peak power prices since early July. In addition to strong loads, Northwest markets also confronted hydro production down about 20% from August levels. We estimate that WECC U.S. demand was down 1.0% from the prior year in September with modest increases in the Northwest and central Rockies more than offset by declines in California and the inland Southwest. Load changes were consistent with weather patterns as California and Nevada temperatures averaged well below the prior year.
International Thermal Coal Forward Price Contango Overoptimistic in PIRA’s View
The rise in prompt seaborne coal prices due to the return of seasonal demand for the winter restocking period will likely be softened (particularly in the Atlantic Basin) by Colombian supply returning to normal. Surging Capesize freight rates have been supportive of prompt pricing and are forecast to sustain elevated levels through 1Q14. In the Pacific Basin, growing electricity needs in China and India are increasing coal demand, but rising renewable generation capacity additions are a threat to coal dispatch. Ample supply is limiting upside in prices; however, recent shut-ins are becoming supportive for medium-long term pricing
Seasonal Demand Boosts Prompt Seaborne Coal Prices
Seaborne coal prices were mixed last week, with API#2 (Northwest Europe) falling throughout the entire forward curve, while API#4 (South Africa) and FOB Newcastle (Australia) prices rose in the prompt, but deferred prices fell. The delayed impact of the return of Colombian supply seems to have been behind some of the weakness in API#2 prices. Slightly lower dry bulk freight rates were deflationary for API#2 but also allowed for a slight appreciation in FOB Newcastle and API#4.
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
3 Park Avenue, 26th Floor
New York, NY 10016