PIRA Energy Group's Weekly Natural Gas, Power and Coal Market Recap for the Week Ending February 9th 2014

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Oil Parity Spot Prices Appearing in Asia, while Renewable Additions Slowing during 2013, but Still Substantial

PIRA Energy Group

PIRA Energy Group

Oil parity spot prices are appearing in Asia, with Japan and China willing to pay upwards of $19.00/mmBtu to secure to spare cargos.

NYC-based PIRA Energy Group reports oil parity spot prices appearing in Asia. In the U.S., the EIA’s reported gas stock withdrawal underwhelmed considerably. In Europe, could we see day ahead dip into the mid-50’s? Specifically, PIRA’s analysis of natural gas market fundamentals has revealed the following:

Oil Parity Spot Prices Appearing in Asia

Oil parity spot prices are appearing in Asia, with Japan and China willing to pay upwards of $19.00/mmBtu to secure to spare cargos. Elsewhere, the appetite is nowhere near as strong, with Korea expected to come largely off the spot market in a big way with the return of normal nuclear power generation and “normal” January weather.

EIA’s Reported Gas Stock Withdrawal Underwhelmed Considerably

The EIA’s reported 262 BCF gas stock withdrawal for the Reference Week underwhelmed considerably relative to a market consensus in the low 270s, but the NYMEX reaction to the update was barely a speed bump amidst a nearly 50¢ downturn in the nearby March contract. As gas prices around the continent have responded to heightened scarcity risks, with various regional markets reaching unprecedented highs, we have raised our average monthly February and March 2014 Reference Case Henry Hub cash prices.

Could We See Day Ahead Dip into the Mid-50s?

What all this means for the balance of February and March is that the emerging weakness in underlying and year-on-year demand will not necessarily translate into day ahead gas prices that are sustainable under 60p/th. It is simply too easy to pull gas off the market in the U.K., with the main supplier already facing multiple upstream problems that are limiting its export capacity from Norway. Could we see day ahead dip into the mid-50s on occasion this quarter? Certainly, but the effect will not be sustainable unless combined with a conscious decision to unload working gas storage simultaneously.

NYC-based PIRA Energy Group reports that renewable additions slowing during 2013, but still substantial. In the U.S., as a severe winter expands the gas storage deficit and exposes regional constraints, regional gas prices have soared and the 12 month strip has risen sharply. Specifically, PIRA’s analysis of electricity and coal market fundamentals has revealed the following:

Renewable Additions Slowing during 2013, but Still Substantial

With more data now available across Europe, renewable capacity additions continue to surprise to the upside. While growth is slower year-on-year, 2013 installations of both wind and solar units still appear to be quite substantial, especially given the dismal performance of electricity demand. Germany and the U.K. emerged as the countries with the largest additions. In Eastern Europe, Poland also featured steady wind additions, while the Nordic markets continue to lag behind. Growth of solar capacity is estimated to have totaled 11 GWs during 2013, bringing total nominal capacity to about 80 GWs across Europe.

What Could Trigger a Gas Price Spike?

Weather uncertainties surrounding the current month have contributed to recent price volatility, underscoring the “weather roulette” nature of the market. Regardless, a ~10% colder-than-normal February is a plausible scenario that would reduce end-February U.S. and Consuming East storage to ~1,200 BCF and under 500 BCF, respectively. Yet, CE storage and the region’s related supply reliability issues could resurface later this month, suggesting that another major price spike could be in the works. On balance, price risks are asymmetrical to the upside.

Canadian Gas Crunch Will Limit Exports to the U.S.

In the advent of additional weather-induced U.S. gas demand spikes in the weeks ahead, Canadian supply is unlikely to flow into the U.S. at the peak rates reached during the past two months. Storage scarcity concerns in the U.S. are even more acute in Canada. Eastern inventories already are critically low for this stage of the heating season, and unrelenting outsized draws from Alberta inventories are also prompting concerns over supply adequacy. Constrained Canadian exports will exert additional upward price pressures on U.S. markets reliant on western Canadian supply, with bullish price implications for Henry Hub as well.

Turkmenistan Ends Its Policy of “Free Gas For All”

Turkmenistan’s president has announced new prices for natural gas, ending the longstanding free supply to citizens in the energy-rich Central Asian nation. President Gurbanguli Berdymukhamedov said in a resolution published in the official government newspaper on Saturday that each person would still be allowed up to 50 cubic meters of gas for free, but anything over that amount would require payment.

2014 Coal Supply Disruptions: Significant Volumes Losses, Subdued Pricing Impact

2014-to-date has been marked with several high-profile disruptions to coal supply. Curtailments in exports from Colombia, South Africa, and Queensland have all served to tighten balances, yet prices have hardly moved. The lack of a substantial pricing response is a bearish indicator for 2014 pricing.

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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