PIRA Energy Group's Weekly Natural Gas, Power and Coal Market Recap for the Week Ending April 15th, 2013

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Europe gas storage issues take center stage, while Crucial Vote Ahead for EU Emissions Trading System

PIRA Energy Group

PIRA Energy Group

PIRA Energy Group reports that gas storage issues in Europe are becoming the driving force in European spot gas market direction. In LNG markets, the Mideast buying season begins this month, just as the Asian market softens.

NYC-based PIRA Energy Group reports that gas storage issues in Europe are becoming the driving force in European spot gas market direction. In LNG markets, the Mideast buying season begins this month, just as the Asian market softens. Specifically, PIRA’s analysis of natural gas market fundamentals has revealed the following:

*Europe Gas Storage Issues Take Center Stage

Weather deviations from normal are being rapidly replaced by storage injection deviations from normal as the driving force in spot market direction. Now that weather-based demand – as seen in the PIRA 10-day daily demand outlook – is teetering between normal and below normal, day-ahead prices are receding back to pre-winter levels, where the mid-60s are considered a high price and the mid-50s are considered a low one. A key point of emphasis bears repeating: higher-than-normal demand for storage injections has never been a historical price support mechanism for day-ahead prices.

*Mideast LNG Buying Season Begins Just as Asian Market Softens

Maintenance season in the Middle East starts this month and will pull some 1.6-bcm off the market over the next two months (around 20 cargos). Added to that is the beginning of seasonal imports to the region in Kuwait and Dubai (not to mention Israel), which will further impinge on net cargo flows out of the region. Kuwait and Dubai together sourced around 42 cargos from Qatar last year in the March to October period and it is looking like import levels in 2013 will be about the same, depending on the weather.

*New Pipelines for New England?

Despite the ongoing massive increase in nearby Marcellus supply, New England markets have long been located at the “end of the pipe.” The combination of recent colder-than-normal weather, uncompetitive LNG imports, and increasing supply concerns surrounding both Sable Island and Deep Panuke should result in sharply higher NYMEX Algonquin Gas Transmission citygate basis premiums through 2015. However, such basis strength is likely increasing the attractiveness of new pipeline capacity projects.

NYC-based PIRA Energy Group believes that the back-loading vote for the EU ETS in the European Parliament will narrowly pass. The outcome of the vote will likely decide the future of the EU ETS market and effect German power prices. In North America, electricity loads in the Eastern Interconnect increased year-on-year in March. Specifically, PIRA’s analysis of electricity and coal market fundamentals has revealed the following:

*EU ETS: Critical Vote on ETS Market

The back-loading vote in the European Parliament is slated for April 16, and PIRA expects the measure to very narrowly pass. This will put the ball in the court of the European Council - where we believe Germany will follow the Parliament's lead. The expected impact of back-loading on prices is in some ways a view on the rigidity of hedging behavior. With enough speculative players willing to engage the market, back-loading should have more limited impacts on prices.

*March (to the Beat of a Different Drum)

PIRA estimates that electricity loads in the Eastern Interconnect increased year-on-year this March, mainly as a result of colder weather. Likewise, net generation in the East increased from the year prior. Mild weather early in the heating season followed by harsh conditions toward the end helped both gas and power prices finish 1Q13 on a strong note. Gulf Coast spot gas prices, which traded in the $3.00-50/MMBtu range through February, moved up to the $4/MMBtu area in late March.

*Coal Market Continues Slight Rebound

The rebound in coal pricing that began the week before last continued last week, although the gains in prices were smaller by comparison. The market seems to have found a bottom, but PIRA continues to believe that supply-demand fundamentals are only on tenuous footing, and the pricing rally should not continue much further, barring substantial weather-related disruptions in supply.

*North American GHG Quarterly: Emissions to Rise, with Focus on Methane

U.S. CO2 emissions are expect to jump up in 2013, the start of an expected steady upward trend going forward. Proper estimation of emissions from methane, having been a source of controversy, and emission factors will be revised upward in future GHG inventories. Revisions have actually increased estimated emissions from fracking. Power plant GHG NSPS will be delayed, along with efforts to extend coverage to existing units.

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
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