The gravitational center of LNG trading is firmly in Asia, and spot prices are showing more strength on the ongoing maintenance of strong nuclear-outage related Japanese demand.
New York, NY (PRWEB) January 23, 2014
NYC-based PIRA Energy Group reports that South America joins Asia in spot price support. U.S. production to bear burden of narrowing U.S. storage deficit. European storage outlook begins to morph. Specifically, PIRA’s analysis of natural gas market fundamentals has revealed the following:
South America Joins Asia in Spot Price Support
The gravitational center of LNG trading is firmly in Asia, and spot prices are showing more strength on the ongoing maintenance of strong nuclear-outage related Japanese demand, but the once counter seasonal markets in South America are holding their own in the “off season” and as a result are keeping a floor on global spot prices. That floor remains at a large discount to Asian spot prices, begging the question of how long Asian prices can be supported over $19.00/mmBtu. Still, buyers such as Petrobras, Enarsa, and Mexico’s CFE appear to be having no trouble securing incremental spot volumes for February and March.
U.S. Production to Bear Burden of Narrowing U.S. Storage Deficit
PIRA’s October forecast had projected an end-January year-on-year U.S. storage deficit of ~100 BCF using 10-year normal GWHDDs. Now, a 600+ BCF deficit looms for that date — cold weather the overpowering cause. Canadian exports have been inflated to help meet higher-than-expected U.S. demand, but the size of Canada’s 1Q14 storage deficit is set to limit post-March shipments to the U.S. As a result, incremental year-on-year U.S. production looks burdened to assume a very heavy load in narrowing U.S. storage deficits before the next heating season.
European Storage Outlook Begins to Morph
Another area of supply being pulled from the market is storage, which if maintained, will have considerable effects on the summer injection season. Storage withdrawal levels in many key countries are absolutely anemic by historical standards, turning what once was a large storage deficit going into winter into a sizable surplus. While Europe does not have nearly the storage capacity it needs to handle its normal weather load, it is still managing to underutilize the facilities it operates.
NYC-based PIRA Energy Group reports that gas units priced at PEG SUD levels to impact French month-ahead prices. In the U.S., power prices fundamentals in the eastern grid are stronger than they have been for some time. Specifically, PIRA’s analysis of electricity and coal market fundamentals has revealed the following:
Gas Units Priced at PEG SUD Levels to Impact French Month Ahead Prices
While moving lower over the past few weeks, French month-ahead prices remain among the most expensive within Western Europe. The developments in the French day-ahead auction show a completely different dynamic from the forward markets, as French day ahead prices so far in January have averaged only about 3 euros/MWh above their German counterparts. However, even in a market context awash with supply, France needed to dispatch this week a unit priced at PEG SUD spot gas.
Power Prices Fundamentals in the Eastern Grid Stronger Than They Have Been For Some Time
The fundamentals for power prices in the Eastern grid are stronger than they have been for some time. Positive developments include lower gas inventories and firmer prices outside of the Marcellus production area, continuing erosion of coal capacity, increased outages for coal (MATS-related) and nuclear, a drier and warmer Southeast this spring/summer, slower growth in wind generation and resumption of growth in weather-adjusted loads. Winter forward prices will see support as the markets absorb the lessons of January’s cold snap: the consequences of increased reliance on gas.
Seaborne Coal Prices Climb Higher
The seaborne coal market pushed higher again last week, with the halting of Drummond’s coal exports in Colombia continuing to grab headlines and foster worries of supply adequacy during the peak winter demand season. Both API#2 (Northwest Europe) and API#4 (South Africa) prices for 1Q14 were up week-on-week, with the latter price growing to by a greater extent. In the Pacific, FOB Newcastle (Australia) prices only managed a slight rebound from the substantial losses in the previous week as Chinese buying activity has been tenuous at best of late.
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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