PIRA Energy Group's Weekly Natural Gas, Power and Coal Market Recap for the Week Ending April 27th 2014

Seasonal Demand Losses and More Contract Flows Depress Spot Prices, while Structural Bullish Fundamentals Underpin Polish Prices

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PIRA Energy Group

PIRA Energy Group

Colossal storage deficits will make rebuilding storage far more difficult than any other time in the last decade. This month’s year-on-year refills have been much slower than PIRA’s earlier expectations, despite normal weather.

New York, NY (PRWEB) April 30, 2014

NYC-based PIRA Energy Group reports that seasonal demand losses and more contract flows depress spot prices. In the U.S., colossal storage deficits will make rebuilding storage far more difficult than any other time in the last decade. In Europe, competitiveness of gas in power sector is still limited. Specifically, PIRA’s analysis of natural gas market fundamentals has revealed the following:

Seasonal Demand Losses and More Contract Flows Depress Spot Prices

Imports will remain well above contract levels in Asia and South America, and as spot prices continue to spiral down, opportunities will emerge for more price sensitive buyers to begin or continue buying above contract levels. Seasonal gas demand is at its low point in Japan and Korea, which is creating a lack of buying urgency for the months ahead in Asia. In contrast, South American buying is going into overdrive on an extended drought in Brazil.

The Tremendous Challenge of Rebuilding Storage

Colossal storage deficits will make rebuilding storage far more difficult than any other time in the last decade. This month’s year-on-year refills have been much slower than PIRA’s earlier expectations, despite normal weather. Transportation constraints have diminished the odds of a faster-than-forecast Marcellus/Utica shale gas expansion, and imports from Canada have become exposed to greater downside risks. Gas-fired electric generation is unlikely to incur losses that would adequately accelerate restocking ahead of next winter without higher prices. Along with above-trend industrial demand growth, these issues highlight the tremendous challenge of reaching a “tolerable” October exit storage position.

Competitiveness of Gas in Power Sector Still Limited

With spot gas prices falling below 50p/th, the issue of how much gas-fired capacity is currently being operated across the European power sector is becoming more relevant. While the role of gas across Europe has generally diminished and is now residual, pockets of gas-fired generation across several markets still remain significant according to an analysis provided by PIRA's European Electricity Service.

NYC-based PIRA Energy Group believes that structural bullish fundamentals underpin polish prices. In the U.S., natural gas prices are facing strong upward pressure and coal stocks have fallen sharply year-on-year. Specifically, PIRA’s analysis of electricity and coal market fundamentals has revealed the following:

Structural Bullish Fundamentals Underpin Polish Prices

Polish day-ahead power prices have been supported as of late, settling well above Germany and the rest of Eastern Europe. Polish prices are benefitting from structural bullish drivers, which include a lack of renewable capacity, higher costs of its domestic coal mining and higher fossil fuel unvailabilities due to a significant modernization process to its existing fossil fuel fleet, in order to comply with the IED Directive from 2016. While capacity subsidies have been agreed for a few units, the Polish market faces a net fossil fuel capacity loss in the short-medium term.

U.S. Coal Stockpile Estimates

As early natural gas (NG) storage builds underwhelm, NG prices are facing strong upward pressure and coal stocks have fallen sharply year-on-year. We estimate that U.S. electric power sector (EPS) coal inventories will reach only ~124 MMst this month or 54 days of forward demand (versus 76 days one year ago).

Egyptian Industrial Gas Users to Participate in Gas Price Reforms

The Egyptian Ministry of Commerce, Industry, and Investment has stated its intent to increase energy prices for the industrial sector from next July, the ministry plans to organize a meeting with leaders in the sector to consult with them about how the liberalization measures and energy prices will affect them.

Japanese Imports Hit Their Limit

Japan set an LNG import record for the fiscal year ending in March, but barely. The figures highlight that the country is more or less at peak for additional gas consumption and will need to back out spot volumes in order to make room for new PNG (a lot) and Australian (a little) contract volumes in the second half of 2014. Long-term PNG buyers include Sinopec, Osaka Gas, Tepco, and CPC Taiwan, but it is the Japanese buyers that are the most significant to the current tapestry of the spot market.

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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