PIRA Energy Group's Weekly Natural Gas, Power and Coal Market Recap for the Week Ending June 30th, 2013

Nigeria LNG Force Majeure to Stir up Spot Markets, while Lower Flows to the Nordic Markets Bearish for German Prices

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PIRA Energy Group

PIRA Energy Group

As we enter the lowest gas consumption period of the year, supply is not dropping as fast as demand, but supply is dropping fast enough to limit storage injections to the point where spot prices will continue to see support.

New York, NY (PRWEB) July 03, 2013

NYC-based PIRA Energy Group believes that Nigeria LNG force majeure to stir up spot markets. In the U.S., PIRA expects end-October usable working capacity to be up from a year ago. In Europe, the storage deficit improves but remains significant. Specifically, PIRA’s analysis of natural gas market fundamentals has revealed the following:

*Nigeria LNG Force Majeure to Stir up Spot Markets

An extended delay in total exports from Nigeria could spell serious trouble in Asia as the summer peaking season for Japan kicks in. Nigeria LNG has issued a force majeure on exports as a port blockade over a tax dispute has halted all LNG exports since June 22. For now, Europe's lack of urgency in using LNG to make up its storage deficit is keeping global markets well stocked, as reloads from Belgium and Spain continue. An ample regional price difference between the N.W. Europe spot price and those in Asia easily covers the cost of re-directing cargos.

*Projected End-October 2013 Storage Capacity

The build-out of U.S. storage has slowed since the 2012 injection season. PIRA estimates that only 43 BCF of working gas capacity has been added since end-October 2012. PIRA expects end-October usable working capacity to be up from a year ago.

*Storage Deficit Improves but Remains Significant

As we enter the lowest gas consumption period of the year, supply is not dropping as fast as demand, but supply is dropping fast enough to limit storage injections to the point where spot prices will continue to see support. The European-wide storage deficit remains large, although not as large as it was one month ago, and pockets of stability are emerging. The U.K. and Italy are trending toward normal levels, while Germany and France still have a long way to go.

NYC-based PIRA Energy Group reports that lower flows to the Nordic markets bearish for German prices. In the U.S., spot power prices were mixed with a moderate month-to-month decline at SP15 and virtually unchanged prices elsewhere. Specifically, PIRA’s analysis of electricity and coal market fundamentals has revealed the following:

*Lower Flows to the Nordic Markets Bearish for German Prices

The Nordic markets have been purchasing a significantly larger amount of power relative to a year ago, but higher water availabilities in the Nordic markets will start cutting German power flows. This fundamental factor is bearish for German power prices for the balance of 2013 and 2014. While the grid upgrade is a critical factor to watch, regulatory risks remain the major wild card for German power prices in the medium term.

*Gone Fission

The month of June began with the retirement of San Onofre Nuclear Generating Station (SONGS) and ended with an unplanned outage at Diablo Canyon 1 Nuclear Station. Spot power prices were mixed with a moderate month-to-month decline at SP15 and virtually unchanged prices elsewhere. Weather in June was mixed, with Northern California, the inland Southwest and Central Rockies warmer than normal, while the Pacific Northwest and Southern California were cool. PIRA estimates that Western Interconnect U.S. loads increased in June. Weather-adjusted loads, which turned lower year-on-year in May, seem to be growing again this month with CA ISO, Bonneville Power Administration (BPA) and Sierra swinging back into positive territory.

*Weakness in Pacific Basin Markets

Weakness in Pacific Basin markets continued this month, despite no new substantive news on China’s potential import ban on low-cv and high-sulfur coal. Australian supply remains robust, aided by a weaker Australian dollar, take-or-pay contracts, and producers who seem to be trying to lower average costs by boosting production. In the Atlantic, there appears to be some adjustments to coal supply, as U.S. thermal coal exports have begun to fade.

*Recent Surge in Cape Trip Charter Rates

For most of 2Q13, the daily average Cape trip charter rate was slightly below the average level recorded in 2Q12. The recent surge has pushed the rate up to levels recorded two years ago. Many Cape owners would be delighted to see rates retrace the path recorded in 2H11. However, PIRA remains unconvinced that the recent rally can be sustained in the near term. We believe that most of the impetus came from the Baltic’s new guidelines on rate assessments. This has clearly boosted sentiment resulting in a pickup in Cape fixing and some improvement in Cape spot rates.

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.

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