Structural changes that could lead to an unprecedented increase in the call on U.S. gas supply have become more visible of late.
New York, NY (PRWEB) August 06, 2014
NYC-based PIRA Energy Group believes that India sees a weaker spot market for LNG. In the U.S., price-induced gas electric generation gains are starting to counter cool weather. In Europe, power sector gas demand and supply cuts support spot prices. Specifically, PIRA’s analysis of natural gas market fundamentals has revealed the following:
India Sees a Weaker Spot Market for LNG
After steep LNG import declines in India last year and flat growth in 1H, changes to the LNG import outlook may be in the offing in a much more attractive spot price environment. Last month India’s imports saw a relatively major boost of around 7-mmcm/d after declines in the prior 2 months.
All Regional Prices Weaken, but Basis Generally Firm Outside of Northeast
Irrespective of the temperature-driven fallout on gas burns, U.S. gas-fired electricity generation has remained weak at the same time U.S. supply growth is surprising to the upside. Such a backdrop has allowed regional prices to march lower in near lockstep with NYMEX futures. Even so, basis differentials outside of the Northeast have not substantively weakened. To the contrary, many points have exhibited relative strength in July. Irrespective of Henry Hub prices, upstream prices in Appalachia will remain decoupled from the benchmark.
U.S. Industrial Gas Boom Heating Up
Structural changes that could lead to an unprecedented increase in the call on U.S. gas supply have become more visible of late. Underpinned by a decisive global competitive price advantage, PIRA foresees a gas-intensive U.S. industrial renaissance, together with LNG exports, cross-border pipeline exports to Mexico and emergence of gas for transportation fuel, contributing to a ~18 BCF/D increase Lower 48 gas production by 2019. North American gas buyers and sellers alike will face unique challenges in the pursuit of opportunities in such a game-changing environment largely underpinned by LNG export projects and the industrial sector, which will be led by the chemical industry. This report highlights recent commitments to support gas-intensive manufacturing that will be heavily concentrated in the U.S. Gulf Coast region.
NYC-based PIRA Energy Group believes that weak electricity demand bearish for German prices. In the U.S., a downward revision to gas price projections for the balance of 2014 has significantly improved the heat rate outlook. Specifically, PIRA’s analysis of electricity and coal market fundamentals has revealed the following:
Weak Electricity Demand Bearish for German Prices
July saw a further escalation of the Ukrainian crisis, which is now starting to affect German prices more directly, with a bullish impact on shorter-term prices as a result of fears of supply losses (not only gas, but also coal from Russian origins). However, the Ukrainian crisis is inherently bearish for longer-term prices, as it creates an ideal climate for more ambitious policy efforts to pursue steeper energy efficiency and larger penetration of renewable generation. German electricity demand has been extremely weak so far this year, with clear signs that demand destruction is intensifying.
Western Grid Market Forecast
A downward revision to gas price projections for the balance of 2014 has significantly improved the heat rate outlook. We look for year-over-year gains in heat rates to continue during 2015, resulting primarily from lower gas prices. The Northwest should see the largest gains as the call on gas rises due to lower hydro (El Niño) and nuclear output (planned outage at Columbia station).
Thermal Coal Outlook for 2014 Predominantly Bearish; 2015 Mixed
The prevailing supply tightening in the Atlantic Basin (coupled with fears of further supply losses from Russia), pushed physical and forward coal prices in the Atlantic Basin higher month-on-month. The strength in the Atlantic Basin did not translate into upward movement for FOB Newcastle (Australia) pricing in the Pacific, however. Physical prices in the Pacific Basin suffered last month, undoubtedly in response to further pessimism regarding China’s import demand growth.
Dry Bulk Freight Rates Weaken
Despite booming Australian iron ore exports and continued strong Cape fixing, the Cape freight market slowly deflated this month. Chinese crude steel production hit record levels in June supported by lower iron ore prices which have remained below $100/mt.
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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