The call on LNG supply will begin to rise in the months ahead. Japan will be buying for its seasonal peak in summer, while other countries will add more moderate weather-related gains as well.
New York, NY (PRWEB) May 30, 2013
NYC-based PIRA Energy Group believes that the call on LNG supply will begin to rise in the months ahead. In the U.S., October gas storage levels should have headroom to the low and high end. In Europe, a continued string of colder-than-normal weather does not appear to be disappearing and has an influence on gas price. Specifically, PIRA’s analysis of natural gas market fundamentals has revealed the following:
*Call on Spot LNG Rises, but to Levels Below Last Year
The call on LNG supply will begin to rise in the months ahead. Japan will be buying for its seasonal peak in summer, while other countries will add more moderate weather-related gains as well. PIRA sees LNG balances looser in the third quarter than one year ago, amid signs of weakening spot demand in an Asian market increasingly intent on the signing up of more contracted gas.
*October Storage Level Should Have Headroom to Low and High End
PIRA’s Henry Hub price deck ahead of the 2013-14 heating season leads to an end-October storage level with sizable headroom to both the low and high end of PIRA’s “safety zone.” On the surface, stronger gas prices than those reflected by PIRA’s Reference Case that lead to less gas for electricity generation and thus higher pre-winter storage, ceteris paribus, would appear the more likely alternative outcome. Yet, the “contango conundrum” remains a formidable obstacle as summer-winter price spreads are too narrow to incentivize faster storage refills.
*No End to HDD Influence on Price
A continued string of colder-than-normal weather does not appear to be disappearing from the European horizon. If anything, PIRA’s 10-day outlook shows it intensifying. Given it is almost June, the impact of this string of weather-related increases in demand, now dating back over 15 months, cannot allow PIRA to assume normal weather in the months ahead until there actually is some normal weather. Throw in the intensified Norwegian maintenance, a lack of urgency by Russia to sell more gas, and a continuation of LNG cargo reloadings out of Europe for other markets and the price support is justified.
NYC-based PIRA Energy Group reports that a discussion on a hypothetical carbon floor is under way in Germany. In the U.S., coal stocks were little changed overall during the month of May. Specifically, PIRA’s analysis of electricity and coal market fundamentals has revealed the following:
*Discussion on German Carbon Floor Intensifies
Discussion on a hypothetical carbon floor is under way in Germany. While there is strong opposition, higher carbon compliance costs are a necessity for the German energy transition. In fact, Germany has more limited (and expensive) options relative to other countries to achieve its long-term de-carbonization targets. With coal and lignite units at the margin, a carbon floor would underpin German longer-term power prices
*U.S. Coal Stocks Little Changed
U.S. coal stocks were little changed overall during the month of May as mild weather conditions, rising Illinois Basin (ILB) and Powder River Basin (PRB) production, and easing export volumes offset the impacts of stronger year-on-year natural gas (NG) prices and falling Appalachian production levels. PIRA expects coal inventories will continue to decline relative to last year over the balance of this year, though weather and natural gas price risks will influence the degree of decline.
*Nigeria Loses Gas Supply Again
For the third time in six months, Shell has declared force majeure on its volumes to the Nigeria LNG liquefaction plant, the world’s fourth largest producer. As the largest supplier of Atlantic Basin spot cargos to Asia over the past three years, the impact of what happens in Nigeria is more global than one might think. That said, the previous disruptions went largely unnoticed in Asia, as European contract holders balanced the market by taking greater pipeline supplies from other sources while releasing the Nigerian volumes, in many cases at a sizable price premium.
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.
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