Despite having shipped out only two cargos this month due to maintenance-related reductions, Peru LNG has increased output year-to-date through July and looks to be on target for growth for the balance of this year.
New York, NY (PRWEB) August 07, 2013
NYC-based PIRA Energy Group reports that Peruvian LNG looks to sidestep contractual commitments and seek higher value. In the U.S., the narrow NYMEX summer/winter spread, rising year-on-year U.S. production have reduced buying interest. In Europe, supply risk will build into winter. Specifically, PIRA’s analysis of natural gas market fundamentals has revealed the following:
*Peruvian LNG Looks to Sidestep Contractual Commitments and Seek Higher Value
Despite having shipped out only two cargos this month due to maintenance-related reductions, Peru LNG has increased output year-to-date through July and looks to be on target for growth for the balance of this year. The biggest surprise in delivery points is that considerable Peruvian volumes are still regularly appearing in Spain despite the large price variance between Europe and Asia, which more than covers the higher shipping cost to Asia vs. Spanish terminals in the Mediterranean.
*Northeast Basis Feeling Marcellus Impact
The narrow NYMEX summer/winter spread, rising year-on-year U.S. production, thanks to growth in the Northeast, and a much cooler temperature forecast for August, have reduced buying interest. Appalachia prices, and thus basis, are under acute pressure from a surge in Marcellus production, now increasingly tied to wet gas. While the effects of such gains are being diluted by net losses elsewhere, the expanding access to this supply threatens interest in storage capacity — not just in the Consuming East, but the Producing Region and eastern Canada as well.
*Supply Risk Will Build Into Winter
Norwegian maintenance or not, supply risk remains minimal in August, as seasonal gas demand reaches its annual low point, but the outlook for the upcoming quarters remains fraught with the possibility of temporary price spikes. While the working storage deficit (versus the five-year average and 2012) in Europe is shrinking, the deficit still remains quite large, with the holes most gaping in France and Germany. As for upside price risk, French balances remain the biggest concern.
NYC-based PIRA Energy Group believes that the German power market is becoming particularly weather-driven. In the U.S., western power prices rose across the board in July driven by much above normal temperatures at the start of the month, with many inland areas experiencing triple digit high temperatures. Specifically, PIRA’s analysis of electricity and coal market fundamentals has revealed the following:
*German Market More Weather-Driven
The German power market is becoming particularly weather-driven. PIRA’s analysis shows that solar availability tends to be higher when electricity demand is undermined by temperature deviations (and vice versa). Similarly to solar, wind generation tends to display particularly large variations, with higher availability typically observed with above normal temperatures during the winter months. These patterns tend to amplify the impact on prices from changes in renewable availability.
*Western Grid Market Forecast: Fireworks Start and End Early
Western power prices rose across the board in July driven by much above normal temperatures at the start of the month, with many inland areas experiencing triple digit high temperatures. Day-ahead prices crested above $100/MWh on July 2 with loads down slightly from the prior day. WECC US loads are estimated to have increased from the prior year in July and generation rose.
*Bearish Coal Market Fundamentals Persist, Placing Downward Pressure on Global Coal Pricing Forecast
Pacific Basin prices ticked lower in July on continued supply growth from Australia and weaker import demand from China. Australian producers are focused on lowering costs, which by consequence has led to higher volumes. Demand from India has grown sizably this year, although weakness in the rupee has limited upside lately. In the Atlantic, hotter-than-normal weather and labor-related disruptions to supply have caused a slight appreciation in CIF ARA (Northwest Europe) and FOB Bolivar (Colombia) pricing. Declining U.S. exports look to be offset by weaker coal demand in Europe and ample supply from Russia.
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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