PIRA Energy Group's Weekly Natural Gas, Power and Coal Market Recap for the Week Ending March 30th 2014

Indian Domestic Gas Price Increase Could Have Serious Implications for LNG Demand Growth, while Lower Power Prices Will Lead to Supply Destruction

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PIRA Energy Group

PIRA Energy Group

....the potential delay and possible indefinite postponement of an Indian domestic gas price increase could have serious implications for LNG demand growth this year in Asia in general....

(PRWEB) April 02, 2014

NYC-based PIRA Energy Group believes that the potential delay and possible indefinite postponement of an Indian domestic gas price increase could have serious implications for LNG demand growth this year in Asia in general. In the U.S., last week’s EIA update was above market consensus. In Europe, spot prices are expected to go lower. Specifically, PIRA’s analysis of natural gas market fundamentals has revealed the following:

Indian Gas Price Increase: Delayed or Indefinite Postponement

The potential delay and possible indefinite postponement of an Indian domestic gas price increase – recently set for April 1 – could have serious implications for LNG demand growth this year and not just in India but also Asia in general.

Withdrawal Above Market Consensus

A relatively stout 57 BCF withdrawal was reported in last week's EIA update, a figure above market consensus in the low 50s. As well as being ~50 BCF higher than the five-year average, the official pull indicated tighter balances than suggested by comparisons to last week. The NYMEX prompt month’s pop of more than a nickel following the release provided further evidence of the bullish nature of the report. By settlement, the contract more than held its own ramping up to a net gain of almost 18¢ to ~$4.58/MMBtu.

Is Spot Forecast Low Enough

Severely lowering PIRA's spot price forecast last month was the right move at the right time, but was it lowered enough? At this point, we do not think so due to another month of warmer than normal weather and another expansion of the storage surplus for gas. Current prices along the forward curve reflect a weaker demand for gas from upcoming storage injectors, the power sector, and the R/C sector, with some improvement in the outlook for industrial gas use.

NYC-based PIRA Energy Group reports that lower power prices will lead to supply destruction in European power markets. In the U.S., with colder than normal weather continuing its draw of natural gas and coal stocks, days burn has fallen in most regions. Specifically, PIRA’s analysis of electricity and coal market fundamentals has revealed the following:

Lower Power Prices Will Lead to Supply Destruction

As day-ahead power prices reflect the operational cost of a marginal unit in the stack, the incentives for power generators to keep firm capacity online in Germany are becoming thinner and thinner. The expiration date on running gas units profitably has long since passed, especially inefficient ones, but the critical element now is that the incentives to keep more efficient units online – coal, lignite, or even nuclear – are becoming less clear. A new phase in European electricity has started, one which will see more permanent and sizeable supply destruction.

U.S. Coal Stockpile Estimates

With colder than normal weather continuing its draw of natural gas (NG) and coal stocks, days burn has fallen in most regions. PIRA estimates that total U.S. electric power sector (EPS) coal inventories will hit 115 MMst at month end. This reflects 54 days of forward demand (versus 84 days one year ago). Inventories are tight in the Mid-Atlantic (NAPP) and north-central Plains (PRB) though the former region benefits from a high seasonal gas basis at present.

Dry Bulk Freight Outlook Hinging on Chinese Iron Ore Import Strength

Last month saw some significant dry bulk freight developments. In the West, the focus has been on unfolding events in Ukraine which is a significant exporter of dry bulk cargoes. In the East, there have been signs of wobbles in the Chinese economy and further evidence that the government is pushing ahead with measures aimed at restricting the nation’ steel industry. PIRA expects a downward correction to both Chinese iron ore prices and Cape freight rates when Chinese mills and traders eventually stop adding to imported iron ore stockpiles.

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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