PIRA Energy Group's Weekly Natural Gas, Power and Coal Market Recap for the Week Ending November 24th, 2013

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Asian LNG Spot Price Premium Working Its Way Back to Europe, while Uncertainties Ahead for the Operating Plant Capacity in Germany

PIRA Energy Group

PIRA Energy Group

A tighter LNG balance is prompting Asian buyers to pull in more and more LNG cargos from distant sources.

NYC-based PIRA Energy Group believes that Asian LNG spot price premium is working its way back to Europe. In the U.S., colder year-on-year weather important in keeping storage draws in line with last year. Will Europe pull on its contracted LNG to balance weather-sensitive demand growth? Specifically, PIRA’s analysis of natural gas market fundamentals has revealed the following:

Asian Spot Price Premium Working Its Way Back to Europe

A tighter LNG balance is prompting Asian buyers to pull in more and more LNG cargos from distant sources. Asian buyers are now at a time of the year when regional supplies -– including incremental volumes from Australia's Pluto facility -– are not large enough to meet prompt consumption. PIRA expects import prices by all major sources to show spot price premiums above weighted average contract gas prices

Colder Year-on-Year Weather Important in Keeping Storage Draws in Line with Last Year

Colder year-on-year weather has played a big role in keeping storage draws in line with last year, but the absence of Henry Hub (HH) price premiums that had been in place since 4Q12 has been a factor as well. Going forward, the onus will be back on colder weather for faster storage draws, as last December’s mild weather will provide only a temporary cushion. However, the buildup of production remains the overriding issue behind PIRA’s more bearish outlook for 2014 HH prices.

Will Europe Pull on Its Contracted LNG to Balance Weather-Sensitive Demand Growth?

Two issues are driving the bullish outlook in day – ahead prices: weather-sensitive demand in Europe and supply-constrained spot price increases in Asia. PIRA's 10-day daily gas demand outlook for Europe implies a more bullish outlook for day-ahead prices. A significant uptick in supply is going to be required to meet this immediate demand growth, and the fluidity with which this happens will determine the extent of future day-ahead price increases.

NYC-based PIRA Energy Group believes uncertainties ahead for the operating plant capacity in Germany. In the U.S., electric power sector coal inventories built slightly in November. Specifically, PIRA’s analysis of electricity and coal market fundamentals has revealed the following:

Uncertainties Ahead for the Operating Plant Capacity in Germany

While demand and German net exports continue to be underpinned by colder weather conditions in major European markets, the supply side of the equation is particularly fluid, with German official sources revising capacities in the system (both fossil fuel and renewable), while the legal challenges on the nuclear fuel rods tax make earlier retirement of the nuclear units less certain.

U.S. Electric Power Sector Coal Inventories Built Slightly

PIRA estimates that total U.S. electric power sector (EPS) coal inventories built slightly in November and will reach 161 MMst by month’s end. This reflects 64 days of forward demand (versus 79 days one year ago) and the lowest relative level in three years.

New Statements from a Colombian Government Official Sends Shockwaves Through Seaborne Coal Markets

1Q14 seaborne coal prices rose considerably last week, although changes further along the forward curve were mixed. A statement from a Colombian government official indicating that Drummond would not get an extension to load coal after December 31 sent 1Q14 API#2 (Northwest Europe) coal prices higher, resulting in a modest rise week-on-week. API#4 (South Africa) moved in sympathy, although growth in prices was muted by comparison. FOB Newcastle (Australia) prices rose by an even lesser amount, as potentially tighter balances in the Atlantic are only mildly relevant for FOB Newcastle pricing.

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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