Two elements have acted as the basis for wider summer/winter spreads in the past: lack of regional storage capacity and dependence on gas imports to balance during peak winter demand periods.
New York, NY (PRWEB) July 16, 2014
NYC-based PIRA Energy Group reports that the Japanese nuclear policy draft inches restarts forward; barriers remain formidable. In the U.S., builds decline, but not as much as anticipated. In Europe, Can the Wide Summer/Winter Spread Be Justified? Specifically, PIRA’s analysis of natural gas market fundamentals has revealed the following:
Japanese Nuclear Policy Draft Inches Restarts Forward; Barriers Remain Formidable
A draft ruling on Kyushu’s 1.7 GW Sendai facility increases the chances that at least two nuclear reactor restarts will be in the offing for sometime in 4Q, but are by no means imminent in PIRA’s view. To begin with, the ruling is preliminary, has not even been fully reviewed by the key regulating officials, and has not been made public. It is not known when the new policy will be made public.
Builds Decline, but Not As Much As Anticipated
Storage injections dipped into double-digit territory for the first time in two months, but came in a bit above market expectations at 93 BCF. The EIA’s reported build was stronger than the year-ago and five-year average, but less so than recent weeks. The year-on-year storage deficit shrunk by its smallest weekly increment (13 BCF) in nearly a month.
Can the Wide Summer/Winter Spread Be Justified?
Two elements have acted as the basis for wider summer/winter spreads in the past: lack of regional storage capacity and dependence on gas imports to balance during peak winter demand periods. PIRA's primary concern about current winter pricing is based on a change in the traditional relationship between projected winter demand and storage levels. A comparison between the U.S. and Europe illustrates this point.
NYC-based PIRA Energy Group believes that French day-ahead prices are down on strong nuclear output, medium-term prices unaffected. In the U.S., Milder summer weather patterns across the heartland along with robust gas production have deflated gas prices and power demand, thereby providing a relief valve for coal stocks. Specifically, PIRA’s analysis of electricity and coal market fundamentals has revealed the following:
French Day-Ahead Prices Down on Strong Nuclear Output, Medium-Term Prices Unaffected
Unlike its German counterparts, French day ahead prices have been displaying significant weakness as of late, trading at levels that are closer to the operational costs for nuclear. While short-term wholesale prices are reflecting weaker supply/demand fundamentals, so far only the front months have responded to the increasing signs of oversupply in the French market. The back of the French forward curve continues to find support in a combination of regulatory and weather-related demand risks.
U.S. Coal Market Forecast
Milder summer weather patterns across the heartland along with robust gas production have deflated gas prices and power demand, thereby providing a relief valve for coal stocks. While SUBBIT day’s cover remains an issue due to poor rail service, crisis concerns have abated. Upcoming winter weather and a material gas storage deficit are still sources of significant market risk in the coming months.
Thermal Coal Prices Deteriorate in the Face of Colombian Worker Strike
Despite the news that the mechanics’ union in Colombia has gone on strike, coal forwards declined again last week. API#4 (South Africa) prices exhibited the most weakness, likely due to a downturn in India’s buying of South African coal in response to the monsoon season getting underway in earnest. Seasonally and structural weak demand in the Atlantic Basin, coupled with sluggish coal demand growth in the Pacific Basin, will keep downward pressure on seaborne pricing over the next 90 days. The mechanics strike in Colombia, if protracted, could provide upward momentum for CIF ARA (Northwest Europe) and FOB Colombia pricing.
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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