PIRA Energy Group's Weekly Natural Gas, Power and Coal Market Recap for the Week Ending December 8th, 2003

LNG Cargos More of an Option than a Necessity, while Lack of Nuclear Output Underpins Role of Gas in France and Spain

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PIRA Energy Group

PIRA Energy Group

LNG Cargos More of an Option than a Necessity.

New York, NY (PRWEB) December 11, 2013

NYC-based PIRA Energy Group believes that LNG cargos are more of an option than a necessity. In the U.S., November’s final GWHDD tally soaring above the 10-Year Normal. In Europe, weather-related gas demand and a lack of supply flexibility put a charge into day-ahead prices this week. Specifically, PIRA’s analysis of natural gas market fundamentals has revealed the following:

LNG Cargos More of an Option than a Necessity

PIRA’s view on supply availability during an ultra-tight 2013 (see above) has been that in most European markets for most of the year, LNG cargos have been more of an option than a necessity, offering up between three and six cargos per month in re-exports alone (not including cargos that are diverted beforehand). Led by power sector losses, European gas demand has been so poor this year that the cargos were more valuable on the resale market than for consumption or storage injection in Europe. These “extras” have emerged despite unexpected LNG supply losses from Nigeria, Egypt, and Algeria to the European contract holders.

November’s Final GWHDD Tally Soaring Above the 10-Year Normal

With November’s final GWHDD tally soaring above the 10-year normal and similarly cold temperatures anticipated through mid-December, PIRA has raised our full-month December Reference Case demand forecast relative to our prior month’s projections. Therefore, with our resultant end-of-December 2013 storage forecast markedly below a year ago, we have upwardly revised our 1Q14 Henry Hub Reference Case compared to our prior projection.

Charge in Day-Ahead Prices This Week

Weather-related gas demand and a lack of supply flexibility put a charge into day-ahead prices this week, which was in line with the PIRA forecast. Next week and beyond, weather will play a diminished role on most parts of the Continent, but supply constraints of a broad variety are still very much in play. This spot market is not a place to be short, especially if your position is in any way related to the French gas market.

NYC-based PIRA Energy Group believes that the lack of nuclear output underpins role of gas in France and Spain. In the U.S., facing higher gas prices but even stronger growth in domestic natural gas supply, a 20-year low in coal production is still offset by slack demand for U.S. coal. Specifically, PIRA’s analysis of electricity and coal market fundamentals has revealed the following:

Lack of Nuclear Output Underpins Role of Gas in France and Spain

Day-ahead prices in France and Spain are mirroring the costs tied to the incremental utilization of CCGTs. French and Spanish nuclear generation is heavily down year on year, while a combination of gas pipeline capacity constraints and lack of gas storage have created a surge in gas prices in the PEG SUD hub, with gas prices settling well above contract gas levels and bringing day-ahead power prices up with them.

Over-Supplied

Facing higher gas prices but even stronger growth in domestic natural gas (NG) supply, a 20-year low in coal production is still offset by slack demand for U.S. coal. At the same time, the market for PRB coal is tightening given seasonal gas price trajectory and winter impacts on both coal demand and supply.

Thermal Coal Prices Firm on Continued Colombian Supply Uncertainty in Early 1Q14

Seaborne coal prices moved higher last week, fueled by seasonal increases in coal demand and continued concerns that Drummond will not be able to load coal into the new year until direct loading facilities are ready for use. As one would expect, the pricing impact of potentially constrained Colombian output was largest on API#2 (Northwest Europe), while API#4 (South Africa) and FOB Newcastle (Australia) trailed closely behind. However, the rise in prices was not limited to the prompt, with deferred prices for the three major forward curves moving slightly higher than prompt prices.

Charge in Day-Ahead Prices This Week

Weather-related gas demand and a lack of supply flexibility put a charge into day-ahead prices this week, which was in line with the PIRA forecast. Next week and beyond, weather will play a diminished role on most parts of the Continent, but supply constraints of a broad variety are still very much in play. This spot market is not a place to be short, especially if your position is in any way related to the French gas market.

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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