PIRA Energy Group's Weekly Natural Gas, Power and Coal Market Recap for the Week Ending August 10th, 2014

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An El Niño summer across the eastern U.S. along with robust gas production has depressed natural gas prices and power demand, limiting the call on coal stocks.

New York, NY (PRWEB) August 13, 2014

NYC-based PIRA Energy Group believes that PNG volumes offer glimpse of Asian future a different import mix. In the U.S., price storage was on the mark, but prices fall again. In Europe, Ukraine tension provides support to an otherwise bearish market. Specifically, PIRA’s analysis of natural gas market fundamentals has revealed the following:

PNG Volumes Offer Glimpse of Asian Future a Different Import Mix

What the new PNG supplies will do to the Asia balance this winter is essentially reduce the need for some 9 to 10 cargos per month from farther flung producers in the Atlantic Basin or potentially costlier non-contracted supplies from Qatar to Japan, which holds some 12-mmcm/d of contracts for PNG supply. This shift is a harbinger of an Asian regional reshuffling to come, as more volume from Australia and contracted U.S. capacity potentially reduces the necessity for West African spot volumes and European re-exports.

Storage on the Mark, but Prices Fall Again

Last week’s EIA update revealing an 82 BCF week-on-week increase in gas stocks aligned closely with market expectations centered on ~83 BCF — a rare feat this injection season which has seen many outsized market “misses” to the high and low sides. Indeed, today’s report marks only the third time this season the EIA and the market consensus have been within +/- 2 BCF of one another.

Ukraine Tension Provides Support to an Otherwise Bearish Market

PIRA does see the danger to European gas supply from the current crisis in Ukraine, but until we see an actual disruption or even a significant reduction in flow directly related to the crisis, it is hard to give it more than a cursory weighting for day ahead prices. To be clear, this period is not exactly a good time to have a short position in the European spot market. It seems to PIRA that being neutral or long is the most logical place to be, although every bit of commercial reality suggests that the supply/demand balances remain exceedingly bearish. The risk premium is essentially entirely related to the threat of supply loss this winter, as currently, actual supply reductions seem commercially appropriate.

U.S. Awash in Potential Natural Gas Supply

PIRA’s long-term gas production forecasts are grounded in external assessments of technically recoverable resources (TRR). The EIA appears to be extraordinarily conservative in its recently published estimates of shale gas TRRs, and has taken a similarly cautious approach with respect to its projections of U.S. medium-term gas demand and supply growth. PIRA sees Lower 48 production growing twice as fast as the EIA between 2013 and 2019, led initially by associated and wet non-associated production gains. Toward the end of the decade, a rising call on supply led by the industrial sector and LNG exports likely will require contributions from higher cost sources of production.

Another U.S. Gas Production Surge

Abnormal weather continues to be the center of attention with respect to U.S. gas balances. But the EIA’s latest monthly update provides striking evidence of U.S. gas production strength, even in the face of nominal gas drilling and increasing price weakness across the Northeast due to Appalachia. October is a useful reference point to gauge overall production trends because of Appalachia’s customary 4Q takeaway capacity additions. Between October 2013 and May 2014, U.S. dry production increased by a striking 2.7 BCF/D compared with no meaningful change over the same prior-year period. This report reviews the factors behind the latest production surge and their implications for pre-heating season gas balances.

Indian Gas Price Set to Increase Only Partially

The Indian oil ministry is looking at a reduced increase in price for all domestic natural gas but wants Reliance Industries to sell KG-D6 gas at the old rate until it makes up for a shortfall in supplies over the past four years. The ministry last week internally discussed tweaking the formula, suggested by the C Rangarajan Committee, to bring down the proposed increase to a rate that will be affordable to most consumers and also incentivize exploration.

NYC-based PIRA Energy Group believes that improving hydro balances undermine Nordic power prices. In the U.S., an El Niño summer across the eastern U.S. along with robust gas production has depressed natural gas prices and power demand, limiting the call on coal stocks. Specifically, PIRA’s analysis of electricity and coal market fundamentals has revealed the following:

Improving Hydro Balances Undermine Nordic Power Prices

Nordic winter prices have been trending lower, mirroring an improvement in the expected hydro balances. This trend has occurred while Continental prices moved in the opposite direction, as a result of a firming fuel pricing complex.

U.S. Coal Market Forecast

An El Niño summer across the eastern U.S. along with robust gas production has depressed natural gas prices and power demand, limiting the call on coal stocks. SUB stocks have also been reinforced via coal and gas substitution. Upcoming winter weather concerns are fading. With lower y/y gas prices, coal demand is in harm’s way in 2015.

Supply Fears in Atlantic Basin Boost Pricing

Coal pricing moved higher last week, reversing the losses made in the prior week. Price gains for API#2 (Northwest Europe) in both prompt and deferred markets continued to outperform API#4 (South Africa) and FOB Newcastle (Australia) as Atlantic Basin supplies have tightened, while Pacific Basin balances have not experienced much if any rebalancing. Continued supply issues in Colombia, structural declines in U.S. exports, and persistent fears of escalating geopolitical tensions between Russia and the E.U./U.S. have boosted the pricing outlook, and the upcoming traditional pre-winter restocking season could continue to support prices.

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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