PIRA Energy Group's Weekly Natural Gas, Power and Coal Market Recap for the Week Ending May 11th, 2014

Share Article

Taiwan Joins Nuclear Debate, while U.K. Coal Units Now Less Competitive


After last year’s dip in capacity prices in PJM’s capacity auction, could capacity prices get back on the previous upward trend?

NYC-based PIRA Energy Group reports that Taiwan joins the nuclear debate. In the U.S., larger-than-expected storage builds continue. In Europe, potentially bullish future creates a bearish present. Specifically, PIRA’s analysis of natural gas market fundamentals has revealed the following:

Taiwan Joins Nuclear Debate

Recent developments in Taiwan’s nuclear power generation arena provide an insight into the wider Asian sentiment post-Fukushima regarding nuclear power. Vis-à-vis nuclear power specifically, the current climate is bullish for natural gas in the long term, despite the fact that in the short term the outlook is noticeably bearish. Another interesting aspect of Taiwanese imports is a slight shift in suppliers away from Qatar and the Atlantic Basin towards Asian sellers.

Larger-than-Expected Storage Builds Continue

The recent string of higher-than-expected storage injections continued into the Reference Week. The EIA’s reported build was modestly above consensus estimates. Flow models, including PIRA’s, generally anticipated a lower build. The reported figure fell below the year-ago injection for the first time since early April, though, and was also close to the five-year average.

Potentially Bullish Future Creates Bearish Present

The broader narrative remains in place: concern about a bullish supply situation next winter is leading to a bearish supply situation in the prompt contracts. Russia's latest demand for pre-payment of Ukrainian gas in June will only heighten the sense of tension about supply availability next winter. PIRA has laid out the case for some time that LNG imports are the logical choice for cutbacks for two reasons: first, the gas can be sold elsewhere at a higher netback; and second, the gas is typically the highest priced form of supply in a market losing its most price sensitive form of demand (power generation).

NYC-based PIRA Energy Group reports that U.K. coal units are now less competitive. In the U.S., capacity prices in PJM’s capacity auction could clear higher. Specifically, PIRA’s analysis of electricity and coal market fundamentals has revealed the following:

U.K. Coal Units Now Less Competitive

While the shrinkage of installed U.K. coal-fired capacity is making more room for gas dispatching, the recent decline in short-term NBP gas prices, combined with the rise in the U.K. carbon price floor, has been impacting the U.K. merit order for the first time in a long time. In addition to changing NBP prices, a number of marginal U.K. coal units now face a new set of threats, with renewable generation being one of them.

PJM’s RPM Base Residual Auction Could Clear Higher

After last year’s dip in capacity prices in PJM’s capacity auction, could capacity prices get back on the previous upward trend? The results of PJM’s RPM Base Residual Auction (BRA) are due on May 23 and we think that it will clear higher than last year. We take a look at the auction from the lens of supply-demand and the recent auction rule changes.

Thermal Coal Prices Under Pressure of Weak Market Fundamentals

The coal market continued to look for direction last week, although sentiment largely remains negative. Aside from some slight increased in the FOB Newcastle (Australia) forward curve, prices declined slightly compared to the end of the previous week. Prices in the Atlantic Basin lost more ground than in the Pacific Basin, perhaps due to the lack of upside for coal demand in Europe relative to Asia. Globally, coal fundamentals remain weak, with high supply availability and sluggish demand growth keeping downward pressure on coal pricing.

Coal Unit Control Retrofit and Fuel Decisions — Model Results

Coal-fired power plants in the U.S. are facing both market and regulatory pressures. PIRA’s expected individual coal power plant unit operational decisions and compliance strategies (with existing and expected environmental regulations under PIRA’s current power sector modeling assumptions) are now available through the year 2035. These data are part of PIRA's latest Long-Term North American Electricity Forecast which is updated twice a year, at PIRA’s Annual Retainer Client Seminar in the fall and in the spring.

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.

PIRA Energy Group
3 Park Avenue, 26th Floor
New York, NY 10016

Follow us on LinkedIn.

Click here for Registration and Agenda PIRA University - Houston - Understanding Global Oil Markets - June 10-11, 2014

Click here for Registration and Agenda PIRA University - London - Understanding Global Oil Markets June 19-20, 2014 -London

Share article on social media or email:

View article via:

Pdf Print

Contact Author

Media Relations
PIRA Energy Group
+1 (646) 448-6395
Email >
Follow >
PIRA Energy Group
Like >
Visit website