PIRA Energy Group's Weekly Natural Gas, Power and Coal Market Recap for the Week Ending November 10th, 2013

More Asian contract volumes marginalize Atlantic Basin spot trade in Japan, while German day ahead prices below expectations so far during November, due to weather and renewables.

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PIRA Energy Group

PIRA Energy Group

The key factor in displacing some Atlantic Basin (AB) spot cargos to Japan this winter will be neither the tepid demand for power generation nor the incremental flows away from Europe of additional non-contracted volumes from Qatar.

New York, NY (PRWEB) November 13, 2013

NYC-based PIRA Energy Group believes that more Asian contract volumes marginalize Atlantic Basin spot trade in Japan. In the U.S., well freeze-offs is weighing on the minds of many market participants. European supply is scaled back in early November. Specifically, PIRA’s analysis of natural gas market fundamentals has revealed the following:

More Asian Contract Volumes Marginalize Atlantic Basin Spot Trade in Japan

The key factor in displacing some Atlantic Basin (AB) spot cargos to Japan this winter will be neither the tepid demand for power generation nor the incremental flows away from Europe of additional non-contracted volumes from Qatar. It will be the wholesale long-awaited emergence of volumes from Australia’s third liquefaction project, the 5.9 BCM/yr. single-train Pluto project. While Australian LNG exports to Japan have jumped by some 11-mmcm/d through September, spot import volumes by Japan have fallen by 13-mmcm/d, and the implications of this trend going forward for spot suppliers in the distant Atlantic Basin or better placed Qatar are grave.

Well Freeze-offs Is Weighing on the Minds of Many Market Participants

Now that colder weather is upon us, the risk of well freeze-offs is weighing on the minds of many market participants. Water is the biggest culprit when it comes to freeze-offs, but wells that produce gas with a high BTU content (ie. rich gas containing ethane, propane, or other NGLs) pose an additional risk. PIRA’s Reference Case for the 2013-2014 heating season is based on 10-year normal weather assumptions and does not account for any production losses tied to well freeze-offs. However, sustained, below-normal temperatures could impact as much as 2-3 BCF/D of U.S. gas supply for multiple days, or even weeks, depending on the region affected.

European Supply is Scaled Back in Early November

The sharp cutback in Russian production and Norwegian gas exports in early November offers the expectation of strong day ahead price support in the weeks to come, but also less of a reason to worry about peak supply availability in the middle of the winter. In the case of Russia, gas production has decreased down to more traditional levels of 1.8-1.9-bcm/d after an unprecedented surge in October to over 2-bcm/d. It is clearer now that the increase in October to peak winter levels was directly tied to a shortage of working gas storage in Germany, Ukraine, and several other points along the Russian gas corridor

NYC-based PIRA Energy Group believes German day ahead prices below expectations so far during November, due to weather and renewables. In the U.S., coal producers face a day of reckoning. Specifically, PIRA’s analysis of electricity and coal market fundamentals has revealed the following:

German Day Ahead Prices Below Expectations So Far During November, Due to Weather and Renewables

Warmer weather and ample availability of renewable sources have pushed German EEX day ahead prices well below expectations so far during November. The coincident loss of weather-related demand across Western Europe, together with a high correlation of wind generation among main Continental markets, has lowered the need for German net exports, with significant volatility emerging in hourly net cross-border flows.

U.S. Coal Producers Face a Day of Reckoning

In the face of abundant natural gas supply, slack domestic coal use and a weaker outlook for U.S. exports in 2014, U.S. coal producers face a day of reckoning based on our forward view for expected consumer inventories amid steady production fundamentals.

Market Remains Concerned over Colombian Coal Supply

Coal prices continued to adjust lower last week, recalibrating from the meteoric and non-fundamental surge in pricing in late October. API#4 (South Africa) experienced the largest downward correction, followed by FOB Newcastle (Australia). On the other hand, 1Q14 API#2 (Northwest Europe) forward priced were up noticeably for most of the week, but finished Friday only marginally higher week-on-week, as there continues to be uncertainty if Drummond will be able to load coal in the New Year. PIRA believes that the government will grant Drummond an extension on the deadline to install direct loading systems, although there has been no official word as of this writing.

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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