PIRA Energy Group's Weekly Natural Gas, Power and Coal Market Recap for the Week Ending January 12th, 2014

Asian near term spot demand climate looking bearish, while muted response of German power prices to Drummond’s coal losses.

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PIRA Energy Group

PIRA Energy Group

In Asia, near term spot demand is looking much more bearish over the balance of 1Q14 and beyond owing to the nascent return to normal operation of Korea’s 23 scandal-plagued nuclear power units.

New York, NY (PRWEB) January 15, 2014

NYC-based PIRA Energy Group believes Asian near term spot demand climate is looking bearish. In the U.S., EIA changes its methodology for assessing associated gas production. In Europe, the peak period is upon us for seasonal gas demand over the next four weeks in a normal weather environment. Specifically, PIRA’s analysis of natural gas market fundamentals has revealed the following:

Asian Near Term Spot Demand Climate Looking Bearish

In Asia, near term spot demand is looking much more bearish over the balance of 1Q14 and beyond owing to the nascent return to normal operation of Korea’s 23 scandal-plagued nuclear power units. PIRA forecasts a 9-mmcm/d year-on-year average drop in gas demand for power generation through June. This is the equivalent of some 3 standard cargos per month, and the forecasted decrease is on the conservative side.

EIA Changes Methodology for Assessing Associated Gas Production

Prior to 2012, EIA estimates of gas production from oil and gas wells were based on well classifications made by each individual state. For the 2012 Natural Gas Annual, however, the EIA instituted a new overarching method for defining oil and gas wells that replaces state-published well classifications. Consequently, EIA associated gas estimates now stray significantly from those based on state agency data. PIRA will continue to use state well classifications as they tend to be more indicative of revenue-based drilling criteria, and provide for more consistent year-on-year comparisons.

Peak Period Is Upon Us for Seasonal Gas Demand in Europe

The peak period is upon us for seasonal gas demand in Europe over the next four weeks in a normal weather environment. With the weather turning colder than normal in the U.K. (sustained) and German (temporarily) portions of the 10-day daily demand outlook, the end of the brief "being short" period appears to be just ahead of us in day ahead trading. So just as quickly as supply needed to be removed from the market – cuts emerged in LNG send out, Norwegian exports, and Dutch production – it will need to be ramped up once again if temperatures stay lower than normal.

NYC-based PIRA Energy Group reports that lower muted response of German power prices to Drummond’s coal losses. In the U.S., east grid may set winter power demand record last Tuesday. Specifically, PIRA’s analysis of electricity and coal market fundamentals has revealed the following:

Muted Response of German Power Prices to Drummond’s Coal Losses

German power prices hardly reacted to the news of the suspension of loading of Colombian coal at Puerto Drummond, which will lead to the losses of cheap Colombian coal supplies. The price risks tied to the losses of Colombian coal supplies may be mitigated by the fact that the German coal units may be currently well stocked. In addition, the market appears less concerned about the costs and losses of coal-fired output, as a result of larger renewable generation so far this winter, which has led to redundant spare capacities.

East Grid May Set Winter Power Demand Record Last Tuesday

Severe cold will blanket much of the Eastern Interconnect on Tuesday, January 7. Temperatures are expected to range from 20º - 40º F below normal from the Mississippi Valley to the Appalachians. Peak demand will exceed normal by 120 aGW in the East and nearly 12 aGW in ERCOT. Eastern Canada will also see much above normal weather-related demand. Meeting Tuesday’s loads will stress the power and fuel delivery systems. We expected to see short-term reactivation of idle coal units along with a spike in oil-fired generation. Even with the incremental contribution from coal, oil, and storage hydro, power sector gas consumption expected to crest above 35 BCFD.

Atlantic Basin Prices Rebound on Drummond Export Stoppage

Last week the Colombian government halted Drummond’s coal exports, as its direct loading facilities were not in place. This overruled an apparent deal in which Drummond would be allowed to load coal if it paid a daily fine until it complies with the regulation. Physical CIF ARA and API#2 (Northwest Europe) prices each jumped as a result. However, weakness in Chinese domestic coal pricing pushed 1Q14 FOB Newcastle (Australia) prices down to their lowest point since September 2013. API#4 (South Africa) prices held in the middle.

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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