PIRA Energy Group's Weekly Natural Gas, Power and Coal Market Recap for the Week Ending April 21, 2013

Share Article

2Q13 LNG Demand Attracts Different Types of Buyers, while International Coal Market Shifts Lower

PIRA Energy Group

PIRA Energy Group

PIRA’s tabulation of year-end proved reserves for over 30 publicly traded oil and gas companies indicate the total U.S. proved reserve tally likely fell for the first time in over a decade in 2012, owing to significant price-related revisions.

NYC-based PIRA Energy Group believes that 2Q13 LNG demand will attract different types of buyers. In the U.S., growing proved natural gas reserves tally likely fell for the first time in over a decade in 2012. In Europe, changing Norwegian gas flows could alter supply risks. Specifically, PIRA’s analysis of natural gas market fundamentals has revealed the following:

*2Q13 LNG Demand Attracts Different Types of Buyers

Even without the introduction of new volumes from Algeria and Angola, spot markets continue to soften rapidly. Spot buyers in this period are significantly more hawkish about what they are willing to pay because demand in these areas are not being driven by weather-related needs. Europe has begun to re-stock, Brazil is coping with hydro shortages, and the Mideast is beginning its six-month purchasing window, but all three of these forms of demand are somewhat passive in nature and a far cry from Asian peak demand in 4Q12 and 1Q13.

*Growing U.S. Proved Reserve Tally Stalled in 2012

PIRA’s tabulation of year-end proved reserves for over 30 publicly traded oil and gas companies indicate the total U.S. proved reserve tally likely fell for the first time in over a decade in 2012, owing to significant price-related revisions. However, the markdown is likely to be temporary. A considerable portion of the reserves written off in 2012 could return to producers’ books by end 2013, should gas prices continue to trend higher over the next eight months.

*Changing Norwegian Gas Flows Alter Supply Risks

One of the key shifts PIRA sees occurring in the market is the use of Norwegian gas in greater amounts to alleviate any tightness in the U.K. market. While total Norwegian exports are up in April year-on-year, flows to the U.K. are up over six times as much. The incremental volumes flowing to the U.K. are being taken out of flow rates to Belgium, Germany, and France, with the latter two having to rely more on Russian volumes.

*United States’ Natural Gas Prices Continue to Incentivize Investment

Australia's Incitec Pivot intends to construct a new ammonia plant in Louisiana. Industrial users pay prices close to the Henry Hub reference price, which is significantly better than many options, including Australia, where fears of rising prices, driven by unrestricted LNG exports, has driven domestic prices to double those seen in the U.S.

NYC-based PIRA Energy Group reports that international coal markets shifted lower. In the U.S., annual coal stocks declined but remain elevated relative to historic norms. In Europe, the German power market entered an "impasse" which will be more difficult to exit. Specifically, PIRA’s analysis of electricity and coal market fundamentals has revealed the following:

*Coal Market Shifts Lower

Last week, the coal market gave back some of the gains it achieved in the prior two weeks, with weaker-than-expected economic data coming out of China and a continued downward drift in the oil market providing for the bearish sentiment. Losses for CIF ARA (Northwest Europe) were more moderate than FOB Newcastle (Australia) and FOB Richards Bay (South Africa), as future coal demand was underpinned by weaker carbon prices in Europe.

*Annual Coal Stocks Decline But Remain Elevated Relative to Historic Norms

As a result of stronger year-on-year coal burn levels and weaker production during 1Q13, U.S. coal stocks are exhibiting annualized declines. At the same time, stocks remain elevated relative to historic norms. The East Central and RFC-PJM regions are normalizing more quickly than other areas at this point, with weather and natural gas prices critical drivers.

*April 19 Retirements of Coal Units Less Likely

The German power market has entered an "impasse" from which it will be more difficult to exit, given that the EU ETS will stay dormant for a while. With the lignite and the coal-fired stack broadly competitive against current forward power prices, these units will stay online for as long as there is a need for fossil fuel generation. Retirements of such units will be a much slower and painful process, without tighter carbon policies.

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

Share article on social media or email:

View article via:

Pdf Print

Contact Author

Media Relations
PIRA Energy Group
646-448-6395
Email >
Follow us on
Visit website