PIRA estimates that buying in counter-seasonal markets (Brazil, Argentina, Kuwait, Dubai, and Israel) from April to June is up year-on-year by around 14 MMCM/D.
New York, NY (PRWEB) July 02, 2014
NYC-based PIRA Energy Group believes that additional counter seasonal buying not large enough to support spot prices. In the U.S., there was another bearish EIA storage surprise. In Europe, supply cuts are becoming an imperative. Specifically, PIRA’s analysis of natural gas market fundamentals has revealed the following:
Additional Counter Seasonal Buying Not Large Enough to Support Spot Prices
PIRA estimates that buying in counter-seasonal markets (Brazil, Argentina, Kuwait, Dubai, and Israel) from April to June is up year-on-year by around 14 MMCM/D. The question remains how many more such opportunistic purchases will take place in these counter-seasonal markets, particularly in the case of Brazil and Argentina, where relatively low priced spot LNG cargos are still well above domestic subsidized gas prices. Mideast buyers, which are also oil exporters, have the benefit of a substitution effect of LNG imports to free up oil. But in Kuwait and Dubai, there are some import constraints (as there are in South America).
Another Bearish EIA Storage Surprise
Another stouter-than-anticipated injection was reported in today’s EIA storage update. In addition to being considerably larger than both the year-ago figure (94 BCF) and the five-year average (81 BCF), the 110 BCF build was 5-7 BCF above consensus expectations owing to stronger indicated refills in the East and Producing regions.
Supply Cuts Becoming An Imperative in Europe
Additional supply cuts will have to come if spot prices are to remain anywhere near where they are today. Even before factoring in year-on-year demand losses, the third quarter is the lowest demand period of the year, with consumption dropping another 150-200 MMCM/D versus the second quarter. Typically, this decrease in use would be offset by an increase in storage injections. This year, such increases will not be possible due to capacity constraints, and PIRA is forecasting a decrease in quarter-on-quarter injection rates out of sheer necessity.
NYC-based PIRA Energy Group believes that utilization of German coal capacity faces further uncertainty. In the U.S., coal stocks saw a typical June draw as the summer burn season began. Specifically, PIRA’s analysis of electricity and coal market fundamentals has revealed the following:
Utilization of German Coal Capacity Faces Further Uncertainty
German net power exports set a new historical high during June, but this peak was not enough to push coal-fired dispatching much off of multi-year lows for this time of the year. A mere 10 GWs were needed on average, while 2.3 GWs of new coal capacity has been connected to the grid so far this year. With stagnating power demand and policy-driven supply growth, German coal-fired generators will continue to face increasing uncertainty over the amount of running hours in the upcoming years.
U.S. Coal Stockpile Estimates
Coal stocks saw a typical June draw as the summer burn season began, lowering U.S. electric power sector (EPS) coal inventories to 127 MMst as of the end of this month or 45 days of forward demand (versus 64 days one year ago).
Panamax Freight Rates Suffer Worst Decline in Years
The eye-catching story last month was the sudden collapse in Panamax freight rates. Only for two brief periods in December 2008 and September 2012 has the four-route Panamax average been lower, while the transatlantic Panamax rate also suffered losses to reach an all time low. At these levels, one wonders why owners do not opt to drop anchor and throw out the fishing lines. On balance, PIRA expects Cape freight rates in 3Q14 to track somewhat lower that current paper rates.
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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