A significant surge in the amount of LNG being sold under long-term contract in 2014 is limiting the diet for spot LNG in Asian markets.
New York, NY (PRWEB) May 29, 2014
NYC-based PIRA Energy Group reports that a significant surge in the amount of LNG being sold under long-term contract in 2014 is limiting the diet for spot LNG in Asian markets. In the U.S., the EIA reported the season’s first “true” triple-digit storage injection. In Europe, PIRA is under no illusion that the prices being reported in the Russian and Chinese press will actually be the prices once the infrastructural is built. Specifically, PIRA’s analysis of natural gas market fundamentals has revealed the following:
Lack of Spot Consumption
A significant surge in the amount of LNG being sold under long-term contract in 2014 is limiting the diet for spot LNG in Asian markets. The lack of spot consumption will be particularly acute between now and the end of July due to seasonal decreases in demand.
Triple-Digit Storage Injection
The EIA reported the season’s first “true” triple-digit storage injection today, following last week’s 97 BCF refill adjusted for the reclassification. The indicated 106 BCF build topped the year-ago and five-year average, both of which are 90 BCF. Though the build was only 2-3 BCF above consensus, the news produced an outsized negative response in the nearby NYMEX contract. June futures contract shed more than a dime in its initial move before treading even lower and settling at - $4.36, down - 11¢ day-on-day.
Russia to China, Moving Forward
PIRA is under no illusion that the prices being reported in the Russian and Chinese press will actually be the prices once the infrastructural is built. State to state deals have a long and sordid history of being signed at price X, built at price Y, and commissioned at price Z. The key aspect of this deal was to kick start the building of the infrastructure in a world where a limited amount of capital will be in continuous competition with the immense capital and credit requirements needed to build all the pipelines, tankers, LNG facilities, and shale infrastructure the world will need over the next 20 years. The deal also provides economic support within Russia for industries facing a longer list of sanctions abroad.
NYC-based PIRA Energy Group believes that the lifetime extension of older French nuclear units now questioned. In the U.S., after the frenzy in power and gas trading during 1Q14, closer to normal temperatures in April in most of the grid led to retreats in loads as well as prices. Specifically, PIRA’s analysis of electricity and coal market fundamentals has revealed the following:
Lifetime Extension of Older French Nuclear Units Now Questioned
French forward prices have been anchored for a long time to the need and the consequent costs of extending the lifetime of an ageing nuclear fleet, with nuclear generation currently accounting for about 74% of the French generation. As the French economy struggles and enhanced energy efficiency hits underlying demand trends, the case for extending the lifetime of the existing nuclear fleet is looking much harder to justify. A downsizing of the major component replacement program currently being implemented by EDF may also have an impact on nuclear availability.
Eastern Grid/ERCOT Market Forecast: May 2014
After the frenzy in power and gas trading during 1Q14, closer to normal temperatures in April in most of the grid led to retreats in loads as well as prices. CCGT margins have seen huge gains for the year-to-date in all markets except for the MN hub, but most of the increase accrued during 1Q. For the balance of the year results are mixed with gains expected in New England, PJM-W, the Southeast and ERCOT.
Weak Chinese Imports Weigh on Pacific Basin Coal Prices
A noticeable recovery in pricing in the second half of last week was not sufficient to offset earlier declines, and coal prices largely fell compared to the prior week. FOB Newcastle (Australia) prices declined by the largest extent, perhaps in response to a year-on-year decline in Chinese imports. The market seems to realize that pricing will likely remain in the doldrums as the supply side is broadly hesitant to contract, while demand has largely been underwhelming.
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.
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