PIRA Energy Group's Weekly Natural Gas, Power and Coal Market Recap for the Week Ending February 3rd

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- LNG Demand to Drop in 2Q13, Spot Prices Will Not - - Collapsing EUA Prices Imply Higher German Electricity Exports -

PIRA Energy Group

PIRA Energy Group

Despite the huge drop in global demand that occurs every April versus March, a corresponding drop in LNG spot prices looks less and less certain.

NYC-based PIRA Energy Group believes that LNG demand will drop in 2Q13, but spot prices will not. In the U.S., reduced year-on-year production growth increased supply competition among end-users. In Europe, greater gas supply discipline will be needed this summer. Specifically, PIRA’s analysis of natural gas market fundamentals has revealed the following:

Demand Drops in 2Q13, Spot Prices Will Not

Despite the huge drop in global demand that occurs every April versus March, a corresponding drop in LNG spot prices looks less and less certain. Delays continue to creep into the starting plans for new supply from Angola, and the timing of new volumes from Algeria are being called into question in the wake of regional conflicts.

Reduced Year-onYear Production Growth Increases Supply Competition Among End-Users

Reduced year-on-year U.S. production growth, along with the ongoing downtrend in net imports, continues to favor increased supply competition among end-users, as far as basis differentials are concerned. This bullish basis backdrop would be lessened by lower gas burn in the power sector. However, the magnitude of such losses hinges on the quantity of supply available for total injections necessary to reach “adequate” end-October levels.

Greater Supply Discipline Needed This Summer

The urgency to reduce supply to the market during the summer will be greater this year because the demand outlook remains exceedingly poor. PIRA believes that producers can be disciplined enough to cut in support of price. However, PIRA does not believe producers are anticipating the extent of the demand slide this summer.

NYC-based PIRA Energy Group reports that collapsing EUA prices imply higher German electricity exports. The coal markets were mixed last week, with most forward prices recording week-on-week declines due to a selloff on Friday. Specifically, PIRA’s analysis of electricity and coal market fundamentals has revealed the following:

Collapsing EUA Prices Imply Higher German Exports

The recent collapse in EUA prices, together with cheaper coal prices, is underpinning the competitiveness of German coal- and lignite-fired generation at a point that even the dispatching of nuclear units (within and outside of Germany) is being challenged on a sustained basis. While German exports are set to move more significantly higher, increased CO2 emissions may jeopardize the already delicate (and in some cases criticized) German energy transition.

Mixed Week for Seaborne Coal Market

The coal market was mixed last week, with most forward prices recording week-on-week declines due to a selloff on Friday. The already wide differentials between Atlantic and Pacific Basin coal prices got wider on the week due to weather-related supply losses in Australia. PIRA believes this will increase Asian buyers’ interest in South African coal, boosting FOB Richards Bay 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.

PIRA Energy Group
3 Park Avenue, 26th Floor
New York, NY 10016
(212) 542- 1677
info(at)pira(dot)com

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Jorge Martinez
PIRA Energy Group
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