PIRA Energy Group's Weekly Natural Gas, Power and Coal Market Recap for the Week Ending July 28th, 2013

Winter Faces LNG Supply Risk, while Drier Hydro Conditions Underpin German Exports to Austria.

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PIRA Energy Group

PIRA Energy Group

As of June, pipeline flows covering Pennsylvania and parts of West Virginia indicated that gas production from Marcellus, as well as portions of Utica were significantly above June 2012.

New York, NY (PRWEB) August 01, 2013

NYC-based PIRA Energy Group believes that the winter faces LNG supply risk. In the U.S., gas production from Marcellus as well as portions of Utica was significantly above June 2012. In Europe, Norway has slightly boosted its estimated supply loss in the first 10 days of August. Specifically, PIRA’s analysis of natural gas market fundamentals has revealed the following:

*Winter Faces LNG Supply Risk

The central issue concerning buyers will be the three levels at which to weigh supply risk versus realistic expectations of supply availability. The first level is the erratic risk of supply from the Nigeria's, Yemen's, and Norway's of the world; the second level is the timing and consistency of new supply from Angola and Algeria; and the third level is whether or not European reloadings will persist through peak winter demand.

*Marcellus/Utica Lifting Wet Gas Production

As of June, pipeline flows covering Pennsylvania and parts of West Virginia indicated that gas production from Marcellus, as well as portions of Utica were significantly above June 2012. More important, we expect similar growth to continue as rig efficiency gains and further reductions in the uncompleted well inventory more than offset the decline in the region’s combined gas and oil rig drilling intensity measure.

*Norwegian Maintenance Intensifies

Norway has slightly boosted its estimated supply loss in the first 10 days of August, although the vast majority of Norwegian decreases will occur in the second half of the month. The loss in supply will be over 20-mmcm/d month-on-month. PIRA's current August production estimate is in line with official estimates by the Norwegian Petroleum Directorate.

*2014 Early-Bird North American Natural Gas Outlook

PIRA’s 2013-2014 heating season and 2014 injection season gas balances showcase neither bullish nor bearish storage at end-March or end-October. Inventory levels also depend on PIRA's Reference Case prices, which generally pose downside demand risks. They are high enough to exacerbate the challenges facing gas-fired electricity generation that include weak coal prices and tepid weather-adjusted electricity load growth. However, the price outlook also reinforces matching bullish downside risks for production in the U.S. and Canada.

NYC-based PIRA Energy Group reports that drier hydro conditions underpin German exports to Austria. In the U.S., coal stocks continued to decline in July, though stocks remain above normal on a national basis. Specifically, PIRA’s analysis of electricity and coal market fundamentals has revealed the following:

*Drier Hydro Conditions Underpin German Exports to Austria

Hydro output accounts for a fairly small portion of the German generation mix, but run-of-river generation appears to have deteriorated in Austria and in some regions of southern Eastern Europe. The deterioration in hydro conditions in Austria and other southern Eastern European markets is a market factor that needs to be watched quite closely, as drier weather would imply higher export flows from Germany.

*U.S. Coal Stocks Decline M/M

U.S. coal stocks continued to decline in July, though stocks remain above normal on a national basis. Some regions, notably the Mid-Atlantic and a portion of the Midwest, are already at target inventory levels. PIRA expects that year-on-year declines will continue, albeit at a slower pace. Weather and natural gas price risks are important factors looking forward.

*Coal Prices Edge Higher, but Weak Fundamentals Limiting Upside

Forward coal prices were relatively flat last week, despite the labor strike at Drummond’s mine and shipping facilities in Colombia. Prices generally ticked slightly higher, with 3Q13 prices for API#2 (Northwest Europe), API#4 (South Africa) and FOB Newcastle (Australia) increasing marginally from the previous week. Fundamentals remain weak overall, with upside limits for demand in the short-term, particularly as China’s economic growth has decelerated, while the supply side has not contracted much.

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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