PIRA Energy Group's Weekly Natural Gas, Power and Coal Market Recap for the Week Ending April 6th 2014

Spot Gas Prices in Europe are dropping, while Higher Subsidized CHP generation expected in Germany During 2014.

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PIRA Energy Group

PIRA Energy Group

On the heels of high spot prices scaring away buyers in Asia comes the second quarter, where low spot prices are scaring away sellers from marketing to Europe.

New York, NY (PRWEB) April 09, 2014

NYC-based PIRA Energy Group reports that spot gas prices in Europe are dropping. In the U.S., regional price risks rise due to hefty hole left in N.A. storage. In Europe, to prevent the price of spot gas from falling any further, the removal of additional supply is going to be needed. Specifically, PIRA’s analysis of natural gas market fundamentals has revealed the following:

Spot Gas Prices in Europe Are Dropping

On the heels of high spot prices scaring away buyers in Asia comes the second quarter, where low spot prices are scaring away sellers from marketing to Europe. Spot gas prices in Europe are dropping like a stone, which provides additional incentives for Europe's LNG buyers to divert cargos in the months to come. PIRA has lowered its outlook for European LNG imports over the next two quarters and may have to lower them further. These changes in the European landscape will add additional supply to the global LNG balances and offer something of an offset to the maintenance closures during the second quarter.

Regional Price Risks Rise due to Hefty Hole Left in N.A. Storage

The N.A. market has made it through the 2013-2014 heating season without firm curtailments. More important, with heating loads now in seasonal decline and scarcity risks over, regional basis is beginning to normalize. Yet, without year-on-year losses in the power sector, storage refills face headwinds. Indeed, while segments of the Consuming East are well positioned to refill storage via access to still growing local production, bottlenecks that restrict net exports to the rest of the region and elsewhere in the U.S. would tighten gas balances and thus yield upward price pressures this summer.

Removal of Additional Supply Might Be Needed

If European gas suppliers want to prevent the price of spot gas from falling any further, the removal of additional supply is going to be needed. More diversions of LNG will occur, but it will not be enough, so supply decreases will have to be broader based. Supply cuts thus far have come almost exclusively from Russia and the Netherlands. PIRA expects more aggressive decreases from both. Dutch production is more exposed to weaker spot prices than Russian production, so it is likely to offer a greater response in the weeks ahead. Russian gas production is already down significantly below what is normal for this time of year, but we have not yet seen a corresponding decrease in exports.

NYC-based PIRA Energy Group reports that higher subsidized CHP generation is expected in Germany during 2014. In the U.S., surging hydro output, lower gas prices, and milder weather led to a sharp decline in Northwest energy prices in March. Specifically, PIRA’s analysis of electricity and coal market fundamentals has revealed the following:

Higher Subsidized CHP generation Expected in Germany During 2014

The latest BNetzA's list of power plants suggests no new large CHP plants came into operation so far this year in Germany, but other TSO sources point to higher subsidized CHP output likely being generating and competing against conventional sources.

Sharp Decline in Northwest Energy Prices

Surging hydro output, lower gas prices, and milder weather led to a sharp decline in Northwest energy prices in March with Mid-Columbia on-peak averaging $32/MWh compared with $74 in February. NWPP CY14 hydro output is now projected to be 4% (600 aMW) above the prior year, and the call on gas-fired generation is expected to fall by 14.2% (also ~600 aMW). With the call on gas-fired generation now projected to weaken, implied heat rate and spark spread projections for Mid-Columbia have been revised down. However, we have not made significant adjustments to heat rates in the Southwest which already reflected, particularly in the case of SP15, a steep decline.

Coal Producers Hesitant to Cut Supply, Capping Prices

Coal pricing was relatively mixed last week, although front-end FOB Newcastle (Australia) and API#2 (Northwest Europe) prices moved slightly lower from the preceding Friday. Continued warm weather in Europe coupled with the return of Drummond’s Colombian exports certainly deflated API#2 prices, while high supply availability in the Pacific coupled with concerns over Chinese demand weighed on FOB Newcastle pricing. Despite the unveiling of the light-on-details “mini stimulus” in China, the coal market is expected to remain oversupplied.

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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