Market attention is riveted on Asia for January/ February spot cargo placement. The spot prices reflect the high end of the generally tight nature of LNG supply/demand balances.
New York, NY (PRWEB) December 18, 2013
NYC-based PIRA Energy Group believes that market attention is riveted on Asia. In the U.S., supply cushion for the region’s gas market for many years. In Europe, justified bullish run in spot and winter prices will be taking a break. Specifically, PIRA’s analysis of natural gas market fundamentals has revealed the following:
Market Attention is Riveted On Asia
Market attention is riveted on Asia for January/ February spot cargo placement. The spot prices reflect the high end of the generally tight nature of LNG supply/demand balances. Tightness will persist well into 2014 and be particularly acute during winter months, especially when multiple LNG consuming regions are showing below normal temperatures. A shift in European weather-related demand to warmer than normal has eased up the call on LNG there, but finding a spot cargo in the Atlantic Basin that is not stamped for transport to Asia remains no easy task.
Supply Cushion for the Region’s Gas Market for Many Years
New England LNG send-outs have provided an important supply cushion for the region’s gas market for many years. But with regional gas supply declines negatively impacting gas-fired electric generation in 2012, the NE-ISO made arrangements to ensure that ~4.2 million barrels of oil will be available to backstop electric generation this winter. While this plan lowers the odds of electricity shortages during cold snaps, it does reinforce the prospect of gas prices reaching oil-equivalent levels (and beyond) at times.
Justified Bullish Run in Spot and Winter Prices Will Be Taking a Break
The rapid change in the weather outlook over the past few days implies that the recent and justified bullish run in spot and winter prices will be taking a break. Just how short of long this break will be depends largely on two factors: weather sensitive gas demand changes and LNG supply. PIRA does not expect a massive sell off in day-ahead prices because supply remains highly constrained and easy to remove from the market, but the need to maintain the kind of length necessary over the past 30 days has been severely reduced. PIRA’s 10-day gas demand outlook suggests a substantial shift to warmer than normal temperatures.
NYC-based PIRA Energy Group believes that the volatile fossil fuel requirements will test conventional generation. Colombian coal supply worries bolster atlantic coal pricing. Specifically, PIRA’s analysis of electricity and coal market fundamentals has revealed the following:
Volatile Fossil Fuel Requirements Will Test Conventional Generation
This past week featured volatile German fossil fuel requirements, with PIRA forecasting even greater volatility in the weeks ahead. Will this volatility in fossil fuel requirements combine with a more erratic availability of coal-fired units to deliver day-ahead prices above market expectations? The same reasons that have underpinned EEX day-ahead prices over the past few days (lower coal-fired availability) can always do so in the upcoming weeks.
Colombian Coal Supply Worries Bolster Atlantic Coal Pricing
Seaborne coal prices went higher again this week in the Atlantic Basin, fueled by higher seasonal coal demand and continued concerns over the potential supply impact if Drummond is not allowed to load coal beyond December 31. Pacific Basin price movements were relatively muted as most major buyers are covered well into 1Q14. China’s electricity demand grew by a solid 9.5% year-on-year in November, while thermal generation rose by 12.3%, underpinning structural strength in Asian coal demand in 2014.
Ukraine Seeks New Sources of Gas and Turns to the Chinese
Ukraine has signed an agreement with Chinese CNCEC to build syngas factories as it continues to pursue it gas diversification strategy. The first such plant in the Luhansk region expected to be completed in 2015. The plant will allow Ukraine to save up to 4-bcm of natural gas per year, and the price of the gas will be substantially lower than the current price it pays Russia
Gas Producers Quarterly Recap
Of 20 companies surveyed, 14 reported lower gas production than a year ago. However, half the companies registered only minor changes in output of +/- 10%. Again, the outperformers (COG, RRC, NBL, and SWN) are all active in the Marcellus, and their respective outsized gains were sufficient to almost entirely offset volumetric losses from the majority.
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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