New York, NY (PRWEB) August 14, 2013
NYC-based PIRA Energy Group reports that Qatar takes on expiring LNG contracts. In the U.S., the “perfect storm” and its likely lingering impact have justified downward revisions to PIRA’s Reference Case Henry Hub gas prices. In Europe, French storage builds but remains. Specifically, PIRA’s analysis of natural gas market fundamentals has revealed the following:
*Qatar Takes on Expiring LNG Contracts
PIRA estimates Qatargas has around 25-bcm/yr to market flexibly this year based on existing medium and long term contracts with end users that cannot easily be diverted. Next year, that figure will go up to 29-bcm/yr with the possible expiry of the Repsol contract this December and the June 2014 expiry of the Centrica contract. While this year, and probably well into next year, a good portion of this gas has been sold to Japan on a short-term basis, the imminent restart of at least some of Japan’s nuclear power generation capacity could put the supply powerhouse in a less desirable position, and this is where gas supply issues in Europe (or lack thereof) could re-emerge.
*Price Meltdown: A Gas Demand “Perfect Storm”
The current month has kicked off with arguably gas market bulls’ worst nightmare, a combination of bearish storage reports, mild weather, and looming Marcellus/Utica production gains. The consensus weather outlook through late August calls for much below-normal temperatures, magnifying the effects of weak weather-adjusted electric loads, more intense competition from coal, as well as outperformance from renewables. This “perfect storm” and its likely lingering impact have justified downward revisions to PIRA’s Reference Case Henry Hub gas prices.
*French Storage Builds, but Remains
The lack of urgency in French storage buying does not seem to be changing in early August. The Montoir LNG terminal actually diverted a cargo via tanker transfer to Argentina, while storage injection rates remain around 50-60-mmcm/d. This rate is not low, but it is also not a level one would associate with trying to make up a sizable storage deficit.
NYC-based PIRA Energy Group reports that backwardation in Dutch Prices are too steep. In the U.S., with mild summer weather deflating natural gas pricing, coal prices have slipped further. Specifically, PIRA’s analysis of electricity and coal market fundamentals has revealed the following:
*Backwardation in Dutch Prices Too Steep
The upcoming months and years will continue to feature significant revisions in Dutch generating capacity, as power generators attempt to defend their bottom lines, while regulatory risks are also on the horizon. In the Netherlands, the most critical uncertainties reside in the future of existing coal units, especially in view of the Energy Agreement for Sustainable Growth signed back in July 2013. These units are being particularly influential in baseload price formation and the structure of the forward curve, now in backwardation.
*Coal Prices Slip Further
With mild summer weather deflating natural gas pricing, coal prices have slipped further, notably in the OTC market. U.S. coal exports are also sliding year-on-year due to weak international price forwards. This is increasing production shut-in pressures on the major eastern basins. On the positive side, gas-to-coal switching has increased coal burns relative to a year ago, thus reducing power sector inventories. As a result, some regional markets have tightened, though this is offset by lower gas pricing at this point.
*Climate Policy Developments Prominent in the U.S. and Canada
As part of Obama’s Climate Action Plan, new power plant emissions performance standards will be re-proposed in September and are expected to include separate limits set for coal and for gas plants. Given increasing oil and gas production, methane emissions continue to attract attention. In Canada, the wait continues for national/provincial GHG regulations for the oil and gas sector – both given the pending U.S. decision on Keystone and as one of the final major sectors left for Canada to regulate to achieve 2020 Copenhagen Accord targets.
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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