PIRA Energy Group's Weekly Natural Gas, Power and Coal Market Recap for the Week Ending January 5th 2014

Australia Poised to Turn Out the First of a Large Portion of Next Generation Liquefaction, While Wind and Biomass Volatile in the U.K., But Coal Still Dominates

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PIRA Energy Group

PIRA Energy Group

With daily demand rivaling all-time highs at times this month, the U.S. storage draw will top the former December record of set in 2000.

New York, NY (PRWEB) January 08, 2014

NYC-based PIRA Energy Group believes that Australia is poised to turn out the first of a large portion of next generation liquefaction. With daily demand rivaling all-time highs at times this month, the U.S. storage draw will top the former December record of set in 2000. In Europe, PIRA is bearish on the front end of the price curve. Specifically, PIRA’s analysis of natural gas market fundamentals has revealed the following:

Australia Poised To Turn Out The First of a Large Portion of Next Generation Liquefaction

Australia is poised to turn out the first of a large portion of next generation liquefaction within the next six months, even as key Japanese buyers Mitsui and Mitsubishi decide to cancel a preliminary deal to buy some 2-bcm/yr of LNG from the proposed Browse project. Initially a 16-bcm/yr onshore proposal backed by a Woodside-led consortium that includes the two Japanese buyers as well as Chinese CNPC, BP, Chevron and Shell, the project is transitioning to a much smaller-scale floating liquefaction project utilizing Shell technology. It remains unclear when the project will make FID – it is now provisionally set for mid-2015 – or what exactly the scale will be, but either way, the Japanese customers maintain they will remain involved in the marketing of the project.

Daily Demand Rivaling All-Time Highs

With daily demand rivaling all-time highs at times this month, the U.S. storage draw will top the former December record of set in 2000. Henry Hub weathered this “storm” in a markedly different manner than 2000 when the benchmark price breeched ~$10/MMBtu. While Henry has remained comfortably below the $5 mark so far, many regional prices around the country spiked. Indeed, basis has been much more dynamic as Marcellus-led production growth and high U.S. storage ahead of the jump in heating demand helped to insulate Henry Hub from even stronger upward price pressures.

Bearish On Front End of Price Curve

We have revised downward our outlook for European prices. The cuts for day-ahead prices are heavier on the front end than the back end. The price spike that PIRA forecast as far back as June has come and gone slightly ahead of our schedule, arriving late in the fourth quarter rather early in the first. Therefore, we are shifting down PIRA's outlook for spot prices in the months ahead, being well aware that another cold snap could temporarily change things. For now the PIRA 10-day daily gas demand outlook remains significantly weaker at an average of 217-mmcm/d below normal. On a country level basis, the portion of this weakness tied to the Continent is increasing while the portion tied to the U.K. is smaller.

NYC-based PIRA Energy Group reports that wind and biomass are volatile in the U.K., but coal still dominates. In the U.S., gas-fired generation surged contributing to higher gas and power prices. Specifically, PIRA’s analysis of electricity and coal market fundamentals has revealed the following:

Wind and Biomass Volatile in the U.K., but Coal Still Dominates

As in other Western European markets, U.K. wind output has surged to record levels during December and so far during January. An added source of volatility in the dispatching patterns within the U.K. also comes from the increased usage of biomass. However, coal units remain the primary fuel and technology within the U.K. mix. While gas-fired capacity represents the largest technology in terms of installed capacity and in spite of the carbon floor, gas-fired dispatching accounts for an uncomfortable residual portion of the generation mix.

Higher Gas and Power Prices

Intense cold during the first half of December boosted space heating loads while below normal precipitation tempered the response of hydro supply. As a result, gas-fired generation surged contributing to higher gas and power prices. Depletion of nation-wide gas inventories along with weak runoff projections will sustain elevated energy prices and thermal unit operating margins into 2014. For producers, a happy new year indeed!

Bearish Sentiment Prevails in 90-day Thermal Coal Pricing Outlook

Although it was relatively quiet in the market last week, prices faded on confirmation that Drummond could indeed load coal despite failing to meet the January 1 deadline to have direct loading facilities in place. 1Q14 API#2 (Northwest Europe), API#4 (South Africa) and FOB Newcastle (Australia) all fell to a similar extent, with each price nearing or surpassing their respective two-month lows. The market seems to be falling in line with PIRA’s expectation that the oversupply that the market has been dealing with for the past two years will not be absorbed in the first half of 2014 (at least), and prices have faded.

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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