PIRA Energy Group's Weekly Natural Gas, Power and Coal Market Recap for the Week Ending September 22nd, 2013

High LNG Prices and Several Weaker Regional Currencies in Asia are Limiting Prompt Cargo Demand, while German Power Exports Surge

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PIRA Energy Group

PIRA Energy Group

One of the key questions emerging in the coming months and the year ahead will be whether new LNG import capacity around the world will translate into more competition for LNG supply.

New York, NY (PRWEB) September 25, 2013

NYC-based PIRA Energy Group believes that High LNG prices and several weaker regional currencies in Asia are limiting prompt cargo demand. In the U.S., the EIA’s belated report on end-year 2011 proved U.S. gas reserves indicated reserves increased for the thirteenth consecutive year. In Europe, The gas market is set to enter the fourth quarter with its lowest stock levels since 2007. Specifically, PIRA’s analysis of natural gas market fundamentals has revealed the following:

The Nuanced Relationship between New LNG Import Capacity and LNG Demand

One of the key questions emerging in the coming months and the year ahead will be whether new LNG import capacity around the world will translate into more competition for LNG supply. PIRA does not necessarily see this type of cargo-on-cargo competition emerging from the new terminals, as the role of spot LNG in the winter market is narrowing due to the substantial increase in contract volume secured by buyers, particularly in Asia. High LNG prices and several weaker regional currencies in Asia are limiting prompt cargo demand with buyers opting for the sideline.

2011 Proved Gas Reserve Tally to Mark Temporary Inflection Point

The EIA’s belated report on end-year 2011 proved U.S. gas reserves indicated reserves increased for the thirteenth consecutive year. Sizeable shale gas reserves, which have expanded five-fold since 2007, were behind the year-on-year growth. The estimate is likely to mark a temporary inflection point, however, as weak prices resulted in significant downward revisions to proved reserves by many producers in 2012.

Europe’s Fluid Gas Supply

The gas market is set to enter the fourth quarter with its lowest stock levels since 2007. The lower stock levels can in some ways be justified by weaker underlying gas demand, even though that weakness is not coming from weather-sensitive sources that typically use the gas. But the most important component of the gas balance continues to be the flexibility of key gas suppliers to adjust pipeline volumes in support of spot prices relative to contract levels and the willingness – or even aggressiveness – of gas buyers to divert LNG cargos to other regions at a profit rather than commit these volumes to seasonal storage in Europe.

NYC-based PIRA Energy Group reports that German power exports are surging. In the U.S., Spot power prices declined in all eastern markets in August as mild weather depressed loads and gas prices slipped further. Specifically, PIRA’s analysis of electricity and coal market fundamentals has revealed the following:

German Power Exports Surge

A major reason behind the strength in German day-ahead power prices resides in surging German net exports. An analysis of the hourly cross-border commercial schedules published by ENTSO-E shows that the German interconnectors more heavily utilized for exports compared to earlier years are the Nordic interconnectors, specifically toward Denmark. In addition to lower water content in reservoirs, the Nordic prices are factoring lower nuclear availability in Sweden.

A Midsummer Nightmare

Spot power prices declined in all eastern markets in August as mild weather depressed loads and gas prices slipped further. In ERCOT, warmer weather pushed prices above July levels but markets averaged well below forwards. Loads in the East are estimated to have fallen by 2.7% year-to-year, while weather-adjusted loads fell by 0.6% based on average daily peak loads with weakness focused in the Northeast. In ERCOT, loads increased by 0.8 aGW and weather-adjusted loads rose by 1.3%.

Deferred Prices Down on Expected Pickup in Colombian Coal Supply

Seaborne coal prices were mixed this week, with prompt coal prices rising slightly, while deferred prices declined. The most significant fundamental change this week was the end of the labor strike in Colombia. As it will take time for the returning supply to be delivered to Europe and elsewhere, it is not a surprise that deferred prices fell by a greater extent than the prompt. Additionally, nearby dry bulk freight rates firmed further this week, while the forward curve implies a significant drop-off in rates and return to moribund fundamentals.

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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