PIRA Energy Group's Weekly Natural Gas, Power and Coal Market Recap for the Week Ending March 23rd 2014

Tensions surrounding the Changing Status of Crimea Have Very Little to Do with the LNG Market Directly, while German Year-Ahead Prices at Multi-Year Lows

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PIRA Energy Group

PIRA Energy Group

Tensions surrounding the changing status of Crimea have very little to do with the LNG market directly.

New York, NY (PRWEB) March 26, 2014

NYC-based PIRA Energy Group believes that Tensions surrounding the changing status of Crimea have very little to do with the LNG market directly. In the U.S., there was a modest storage draw for the reference week. In Europe, weather-related losses in March are looking sizable once again. Specifically, PIRA’s analysis of natural gas market fundamentals has revealed the following:

The Changing Status of Crimea Has Very Little To Do with the LNG Market Directly

Tensions surrounding the changing status of Crimea have very little to do with the LNG market directly. While a threat of a cut in gas supplies could emerge from Russia, Ukraine, or the E.U., the reality is that the commercial situation could use a little less gas in the market and that goes for Europe and Asia. From an LNG perspective, if you are going to have a supply crisis, the second quarter is probably the best time of the year to have it, as Asian gas demand drops to seasonal lows and Europe is showing record amounts of length in its own balances. In reality, a crisis still appears to be a long shot, leading PIRA to the conclusion that further downward pressure on spot prices will emerge over the next 30 days.

Modest Storage Draw for the Reference Week

The EIA’s reported 48 BCF storage draw for the Reference Week was extremely modest relative to the prior 15 weeks’ average of 185 BCF dating back to end-November. The draw also fell short of the year-ago figure for the first time in four weeks. Yet, the immediate selloff in the nearby NYMEX contract of nearly a dime appears more attributable to the draw’s whopping ~10 BCF deficit relative to the market consensus rather than the above comparisons. At settle, the contract finished at ~$4.37, down ~12¢ day-on-day.

Weather-Related Losses in March Are Looking Sizable Once Again

Whether measured versus normal or versus last year, weather-related losses in March are looking sizable once again. PIRA’s initial estimate shows a demand loss of 150 mmcm/d versus normal and 320 mmcm/d versus last year. Since the beginning of the Gas Year on Oct. 1, weather-related losses versus normal have occurred in five of the last six months and total 15.5 bcm. This cumulative loss of gas demand over this period quickly wiped out the storage deficit that existed ahead of winter. Entering the spring the storage situation is drastically different. PIRA estimates that stock levels will enter the second quarter roughly 10 bcm above the five-year average and a staggering 17 bcm above last year.

NYC-based PIRA Energy Group reports that German year-ahead prices at multi-year lows. In the U.S., CCGT margins have soared in nearly every eastern and ERCOT market during 1Q14. Specifically, PIRA’s analysis of electricity and coal market fundamentals has revealed the following:

German Year-Ahead Prices at Multi-Year Lows

At this point, PIRA doesn’t exclude further downside moves for the Cal’ 15 baseload contract in the shorter term, mirroring weak day-ahead prices so far during 2014, but also as a result of weaker fuel markets and EUAs. However, we reiterate the fact that the current market prices for the year-ahead contracts are not sustainable in the medium term.

CCGT Margins Have Soared

CCGT margins have soared in nearly every eastern and ERCOT market during 1Q14, ranging from a 75% increase at the IN hub to a 300+% gain at NY-A (these calculations assume the units do not run when the day-ahead spark spread is negative). Only at the MN hub have CCGT margins declined (based on spot gas at Ventura) falling by 12%. Outside of the Midwest, the balance of 2014 should also show gains led by a 78% increase in ERCOT.

Bearish Factors Prevailing for Thermal Coal Pricing

The coal market largely declined last week, with FOB Newcastle (Australia) prices falling by the largest extent, followed by declines to both API#2 (Northwest Europe) and API#4 (South Africa), respectively. A weaker Chinese yuan has made imported coal less competitive compared to domestic coal, and there have been some indications of distressed lower-cv Australian cargoes. Looking forward, particularly after the return of Drummond’s export capacity, seasonal demand weakness and potentially weaker Chinese imports are expected to weigh on global seaborne coal prices.

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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