PIRA Energy Group's Weekly Natural Gas, Power and Coal Market Recap for the Week Ending May 18th 2014

Weak Asian Spot Prices Tied to Stronger Nuclear Outlook, While Fossil Fuel Units Closures Reinforces Austria’s Role as Key Transit Market

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As new supply volumes in Asia stand poised for delivery, the spot price discount to the JCC (Japanese Crude Cocktail - the average import price of Japanese crude oil and the pricing basis for most of Japan’s LNG imports) stands to widen beyond 2013 levels

New York, NY (PRWEB) May 21, 2014

NYC-based PIRA Energy Group reports that weak Asian spot prices tied to stronger nuclear outlook. In the U.S., storage reclassification prompts price rally. In Europe, Italy injects gas at record rates. Specifically, PIRA’s analysis of natural gas market fundamentals has revealed the following:

Weak Asian Spot Prices Tied to Stronger Nuclear Outlook

As new supply volumes in Asia stand poised for delivery, the spot price discount to the JCC (Japanese Crude Cocktail - the average import price of Japanese crude oil and the pricing basis for most of Japan’s LNG imports) stands to widen beyond 2013 levels in second and third quarters. Adding to supply side bearishness, demand in key buyer Korea is taking a dive on an improved nuclear situation.

Storage Reclassification Prompts Price Rally

On first inspection, today’s EIA storage update appeared to extend the recent trend of overweight storage injections. However, the “face value” of the reported 105 BCF build included 8 BCF of gas reclassified from base to working storage, thereby implying actual flows into storage of 97 BCF. The two numbers have starkly different implications compared to consensus estimates of ~100 BCF. This market “consensus” also belied the tremendous uncertainty ahead of the report, with S/D models such as PIRA’s in the upper 90s versus many pipeline flow estimates in the vicinity of 110.

Italy Injects Gas at Record Rates…Just in Case

Stronger buying from N.W. Europe and increasing concerns about supply availability from Algeria next winter is leading to strong storage injections by Italy ahead of next winter. Key buyers in the country are not wasting any time despite a modest increase in year-on-year gas demand in May, as widespread supply availability is making it an opportune time to buy. PIRA projects that the 68-mmcm/d average will surpass the previous record set in April 2006. These injections will put Italian storage at 6.7-bcm by the end of May, which is by far the highest level ever recorded for this time of the year.

NYC-based PIRA Energy Group reports that fossil fuel units closures reinforces Austria’s role as key transit market. In the U.S., seaborne coal pricing rebounds on week, but lagging prior year levels. Specifically, PIRA’s analysis of electricity and coal market fundamentals has revealed the following:

Fossil Fuel Units Closures Reinforces Austria’s Role as key Transit Market

With several fossil fuel units now set to be closed, Austria will remain more structurally reliant on imported power, especially from Germany. The Austrian flows, however, also mirror the status of the supply/demand balances in the wider Southern Eastern European markets. Austria has been in an exporting position toward Slovenia and Hungary, mostly as a result of a tighter Serbian market.

Seaborne Coal Pricing Rebounds on Week, but Lagging Prior Year Levels

Coal pricing moved up somewhat last week, with prompt prices and API#2 (Northwest Europe) prices rising by the greatest extent. 3Q14 API#2 prices rebounded sharply last week after falling in the previous week, while API#4 (South Africa) and FOB Newcastle (Australia) prices increased by comparably small margins. Despite the rise in pricing, there is still little fundamental support for seaborne pricing. Aside from falling U.S. exports, cutbacks on the supply side remain scant, and import demand has been generally underwhelming, keeping global balances bloated.

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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