PIRA Energy Group's Weekly Natural Gas, Power and Coal Market Recap for the Week Ending June 8th, 2014

Spot Market Remains Long; Awaits Asian 3Q Buying for Peak Summer Demand, while Narrower Fossil Fuel Requirements during the Summer Limit Fuel Switching

  • Share on TwitterShare on FacebookShare on Google+Share on LinkedInShare on PinterestEmail a friend
With Brazil now set for supply over the next month during the World Cup, the buyer's market in place will continue to drive prices lower.

New York, NY (PRWEB) June 11, 2014

NYC-based PIRA Energy Group reports that the spot market remains long; awaits Asian 3Q buying for peak summer demand. In the U.S., last week had the fifth largest injection on record. In Europe, producers play central role in European spot price outlook. Specifically, PIRA’s analysis of natural gas market fundamentals has revealed the following:

Spot Market Remains Long; Awaits Asian 3Q Buying for Peak Summer Demand

With Brazil now set for supply over the next month during the World Cup, the buyer's market in place will continue to drive prices lower. Asian summer buying is next up on the docket but not yet noticeable. Europe's option to store unwanted LNG is beginning to thin, as end-May storage levels were closer to what is normally seen in the middle of July.

Fifth Largest Injection on Record, But Futures Rally

In what has become an increasingly familiar trend, early-week NYMEX’s upside momentum was arrested following another modestly higher-than-expected storage build. More specifically, last week’s EIA report revealed a 119 BCF injection that was not only 3-4 BCF above consensus estimates but also marked the fifth largest weekly build dating back some 20 years. It also resulted in the largest increase relative to the five-year average thus far in the 2014 injection season at ~26 BCF.

Producers Play Central Role in European Spot Price Outlook

It is pretty simple formula at this point: if one or more of the major gas suppliers do not cut back production significantly and soon, spot prices are going down severely. The threat of a Russian gas cut-off appears to be diminishing with every public pronouncement, but the situation with European gas balances has become so weak that some combination of Russian, Norwegian, Algerian or Dutch reductions is going to be necessary one way or another.

NYC-based PIRA Energy Group believes that narrower fossil fuel requirements during the summer limit fuel switching. In the U.S., coal stocks have tended to level on a relative basis due to changes in gas basis, regional weather patterns, weaker exports, and priority rail service to plants with low stocks. Specifically, PIRA’s analysis of electricity and coal market fundamentals has revealed the following:

Narrower Fossil Fuel Requirements During the Summer Limit Fuel Switching

While wind and solar generation across Western Europe is now roughly equal to overall gas-fired dispatching on a monthly basis, a chronic lack of electricity demand growth is also limiting the overall size of the power sector fossil fuel needs, limiting its fuel switching capabilities. As such, rebalancing in the gas and coal markets requires even larger supply-side responses than in the past.

Mean Reversion

Regional BIT/SUBBIT coal stocks have tended to level on a relative basis due to changes in gas basis, regional weather patterns, weaker exports, and priority rail service to plants with low stocks. We show SUBBIT days' cover as critically low (approaching post-2005 twin derailment levels) looking forward. Summer and winter weather and the huge gas storage deficit are sources of significant market risk.    

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
212-686-6808
sales(at)pira(dot)com