Explaining the current weakness of the spot LNG market is not a huge mystery; buyers are consuming LNG on a just-in-time basis and require less spot LNG to do so due to an increase in year-on-year liftings under long-term contract.
New York, NY (PRWEB) July 23, 2014
NYC-based PIRA Energy Group reports that spot sellers suffer from buyers comforted by multiple offers. In the U.S., Henry Hub futures dip below $4. In Europe, oil-indexed pricing becoming more active in spot/contract relationship. Specifically, PIRA’s analysis of natural gas market fundamentals has revealed the following:
Spot Sellers Suffer from Buyers Comforted by Multiple Offers
Explaining the current weakness of the spot LNG market is not a huge mystery; buyers are consuming LNG on a just-in-time basis and require less spot LNG to do so due to an increase in year-on-year liftings under long-term contract. Sellers are trumpeting the beginning of speculative buying to the press, but PIRA see no signs of it.
Henry Hub Futures Dip Below $4
The NYMEX Henry Hub prompt contract settled below the $4 mark for the first time since early December following another higher-than-expected weekly U.S. storage build. The EIA’s reported 107 BCF refill added to earlier losses, resulting in an immediate selloff of ~10¢ in the August contract before it found support in the mid $3.90s.
Oil-Indexed Pricing Becoming More Active in Spot/Contract Relationship
Spot prices appear to have found a floor for the time being, as some gas demand growth is responding to pricing signals and major gas suppliers continue to cut back. Now that the dust has settled in this most recent bearish turn, it is important to take stock of the current relationship between spot and contract gas prices, as the issue of re-setting the base price of the latter will emerge in the months to come. What's so interesting about this year's bear market is that contracts with oil indexation are responding to weaker spot gas prices, even though oil prices have remained fairly stable.
NYC-based PIRA Energy Group reports that in Germany, steeper efficiency undermines demand. In the U.S., a cold air mass has brought September-like temperatures to the eastern U.S. in mid-July- driving gas prices below $4/MMBtu. Specifically, PIRA’s analysis of electricity and coal market fundamentals has revealed the following:
Germany: Steeper Efficiency Undermines Demand
German electricity demand implied from generation and cross-border flows has been particularly weak so far this year, with PIRA estimating efficiency-related losses at over 1 TWh/month, far larger than historical evidence that suggested only about 0.5 TWh/month in prior years. As presented in our latest Monthly Outlook, PIRA expects German gross electricity demand in 2015 and 2016 to stay below 2014 levels, even if this year featured particularly warm weather conditions.
Eastern Grid/ERCOT Market Forecast
A cold air mass has brought September-like temperatures to the eastern U.S. in mid-July driving gas prices below $4/MMBtu. Power markets have been hit from both sides (i.e., demand and supply) with loads and fuel costs both plunging. Falling gas prices are re-sorting regional supply stacks, threatening interior coal’s projected market dominance even close to home (the Midwest). This should cause a rebound in power sector gas burn in the Midwest and Southeast, provided, of course, that cooling loads bounce back.
Global Thermal Coal Markets Continue to Exhibit Weakness
Coal pricing was mixed last week, with FOB Newcastle (Australia) prices losing significant ground, while API#2 (Northwest Europe) and API#4 (South Africa) prices largely moved slightly higher. Atlantic Basin prices initially weakened last week, but API#2 and API#4 prices increased notably following the increased tensions in Ukraine on Thursday, and gave back some gains on Friday. For FOB Newcastle, downward pressure from prices cuts from Chinese domestic coal producers and robust seaborne supply from Australia and Indonesia depressed 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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