PIRA Energy Group's Weekly Natural Gas, Power and Coal Market Recap for The Week Ending June 9th, 2013

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Seasonal Weakness in 2Q Global LNG Pressured Down More on Europe, while French Power Net Exports to Stay Strong

PIRA Energy Group

PIRA Energy Group

The traditional 2Q weak point in global LNG demand looks weaker, with May global demand estimated to be down year-on-year.

NYC-based PIRA Energy Group reports that seasonal weakness in 2Q global LNG has pressured down more on Europe. In the U.S., the falloff in natural gas drilling has yet to affect output. In Europe, power sector gas demand spiraled lower. Specifically, PIRA’s analysis of natural gas market fundamentals has revealed the following:

*Seasonal Weakness in 2Q Global LNG Pressured Down More On Europe

The traditional 2Q weak point in global LNG demand looks weaker, with May global demand estimated to be down year-on-year. Cargos continue to re-load out of Europe despite a significant storage deficit and peak Norwegian field maintenance, as rising temperatures and lower residential/commercial demand are creating ample prompt supply. Asian buying remains subdued, but issues related to nuclear outages and concern over Atlantic Basin spot availability will prevent further price weakness.

*Falloff in Gas Drilling Doesn’t Affect Output

The year-on-year falloff in gas drilling intensity has yet to exact a toll on overall gas production of companies surveyed, with total output actually up marginally in 1Q13. Reasons cited for strong production results (improved well performance, reduced drill times, etc.) portend resilient new gas deliverability ahead, seemingly regardless of rig count movements, be it from dry plays (Marcellus, namely) or associated gas from liquids formations.

*Power Sector Gas Demand Spirals Lower

The significant deterioration in fossil fuel needs across Europe primarily continues to undermine the role of gas-fired units. In spite of huge investments undertaken by power generators over the past few years in anticipation of tighter carbon policies and higher needs for cleaner technologies, gas-fired units are now mostly out of the stack. In Germany, we estimate efficient gas units may have been profitable for a mere 10 hours or so in May, against some 95 hours during May 2012. We project profitability of gas-fired units during 2013 will be limited to a 1,000 hours.

NYC-based PIRA Energy Group believes that French power net exports are expected to stay strong. In the U.S., PIRA holds mixed views for the major coal markets. Specifically, PIRA’s analysis of electricity and coal market fundamentals has revealed the following:

*French Net Exports to Stay Strong

The French market needs to keep exports strong in order to avoid a major price collapse this summer. Structurally, French winter prices are set to weaken as well, as more French nuclear maintenance can take place during the summer months.

*Mixed Views for the Major U.S. Coal Markets

PIRA holds mixed views for the major U.S. coal markets –– bearish to neutral for CAPP (Central Appalachian) and ILB (Illinois Basin), neutral for NAPP (Northern Appalachian), and neutral to bullish for the SPRB (Southern Powder River Basin). Export prospects have weakened. This, along with natural gas price/weather risks, will limit the upside for the higher cost (Appalachian) coals. Generator inventories are expected to continue to decline though most regions should remain at or above normal target levels.

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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New York, NY 10016

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