PIRA Energy Group's Weekly Natural Gas, Power and Coal Market Recap for the Week Ending June 23rd, 2013

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LNG Supply Shifts to Asia, while French Hourly Prices Settling Below Zero More Often

NYC-based PIRA Energy Group reports that LNG supply shifts to Asia. At end-May, eastern Canada’s storage deficit remained a whopping 40% of the market’s pre-winter peak. In Europe, there is a strategy shift for third Quarter buying. Specifically, PIRA’s analysis of natural gas market fundamentals has revealed the following:

*LNG Supply Shifts to Asia

More LNG supply will shift to Asia in the second half of the year. New volumes from Angola and Algeria will push more Mideast volumes into Asia, with Qatar emerging with more uncontracted volumes and a more liberal policy on f.o.b. spot sales. PIRA also expects an increase in Nigerian flows to Asia, as they are attractively priced assuming another disruption does not emerge.

*Canadian Storage Deficits: A Double Whammy?

At end-May, eastern Canada’s storage deficit remained a whopping 40% of the market’s pre-winter peak, but eastern Canada’s new access to Marcellus gas could lead to a reduced heating season reliance on storage. Eliminating eastern and western Canadian end-October storage deficits would serve to increase exports to the U.S. from June through October. Conversely, the “double whammy” of eastern and western Canadian storage deficits remaining sizable throughout the injection season would erase most export deficits, thereby minimizing the bullish gas price impact of Canadian storage deficits.

*Strategy Shift for Third Quarter Buying

A key question for spot markets will be whether higher contract gas nominations will lead to lower spot market nominations or will both gas sources be bid up in the third quarter. It could also be argued that spot market strength in the third quarter will come as a result of weakness in contract gas nominations in the second. Obviously, many permutations of the spot/contract mix are possible over the next 120 days and despite the weak demand outlook, more and more of the risk on the forward curve moves to the upside.

NYC-based PIRA Energy Group reports that French hourly prices settling below zero more often. In the U.S., coal stockpiles are declining seasonally, and in relation to the prior year. Specifically, PIRA’s analysis of electricity and coal market fundamentals has revealed the following:

*French Hourly Prices Settling Below Zero More Often

So far during June, several hours in the French day ahead auction have settled below zero, which is a fairly new phenomenon. The most recent price collapse happened in conjunction with particularly strong hydro generation, with French nuclear generation unable to adjust accordingly. Steep decreases in French nuclear output below a certain threshold are either particularly costly or technically difficult to achieve.

*U.S. Coal Stockpiles Falling

U.S. coal stockpiles are declining seasonally, and in relation to the prior year. In particular, regional NAPP (Northern Appalachian) and some PRB (Powder River Basin) markets are at/approaching typical target levels. Other markets (coastal) which are reliant on CAPP (Central Appalachian) and import coals appear to be sitting on above normal inventories, however. As a result, the price implications are varied geographically.

*Outlook for Global Coal Markets Deteriorating as Forward Price Curves Flatten

The international seaborne coal market continues to search for a bottom, with 3Q13 prices for API#2 (Northwest Europe), API#4 (South Africa), and FOB Newcastle (Australia) all hitting new lows. Additionally, deferred prices declined by a larger extent than prompt prices, flattening the forward curve, an indication of the market’s pessimism that a recovery is around the corner.

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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