PIRA estimates that the risk premium built into the forward curve over the latest week of chess moves by Russia and Ukraine is probably 5-7p/th at this point.
New York, NY (PRWEB) August 20, 2014
NYC-based PIRA Energy Group reports that nuclear restarts pushed back in Japan revealing that nuclear capacity will really be taking its time in returning. In the U.S., low storage build points to strengthening electric generation. In Europe, Ukraine fears mask broadly weak European fundamentals. Specifically, PIRA’s analysis of natural gas market fundamentals has revealed the following:
Nuclear Restarts Pushed Back in Japan, Where Alternatives Begin to Emerge
In Japan, nuclear restarts have again been pushed out, this time to 2015, revealing that nuclear capacity will really be taking its time in returning. Several factors are also in play: Japan’s heavy commitment (financial as well as in terms of offtake agreements) to the Cameron project in the U.S. shows that the need for LNG supply to be flexible is an important component of the country’s future import strategy, and the new inclusion of solar as an alternative for both utility scale and local use is offering alternatives to nuclear power.
Low Storage Build Points to Strengthening Electric Generation
Last week’s underweight EIA storage update covering the first full week of August provided the first complete glimpse of U.S. electricity generation’s (EG) elasticity to sub-$4 Henry Hub (HH) prices. The reported 78 BCF injection was on the low end of market estimates and fell short of the consensus by 4-6 BCF. This marks the third bullish storage surprise in the past four weeks following a three-month stretch of mostly bearish updates dating back to mid-April.
Ukraine Fears Mask Broadly Weak European Fundamentals
PIRA estimates that the risk premium built into the forward curve over the latest week of chess moves by Russia and Ukraine is probably 5-7p/th at this point. While it is impossible to completely quantify such a risk premium, the recent rise comes amid an absolute dearth of gas demand in Europe at this time of the year. As we have said over the past two weeks, no one wants to be short in a market where long lines of unidentified Russian trucks are piling up on the Ukraine border and the Ukrainian government is making counter-threats to cut off Russian gas in transit.
NYC-based PIRA Energy Group believes that French net exports set to stay strong in the upcoming months. Seaborne coal prices slide on lack of definitive supply cuts. Specifically, PIRA’s analysis of electricity and coal market fundamentals has revealed the following:
French Net Exports Set to Stay Strong in the Upcoming Months
Significant losses of nuclear output in the U.K. and Belgium will keep the utilization of gas-fired capacity in these markets at relatively stronger levels, while also leading to even stronger imports from France. So far, the French supply has been particularly strong and has allowed France to maintain exceptionally strong net exports, but the amount of incremental power that France can theoretically export in the upcoming months makes the French market more bullish, especially in the fourth quarter.
Seaborne Coal Prices Slide on Lack of Definitive Supply Cuts
Coal prices were relatively volatile last week, although prices closed on Friday below last week. FOB Newcastle (Australia) prices again underperformed relative to API#2 (Northwest Europe) and API#4 (South Africa) prices. This was likely due to softness in Chinese demand data, while Atlantic supply has tightened from Colombian supply issues and dropping U.S. thermal coal exports. While the Chinese government continues to signal that it wants domestic producers to cut supply, definitive proof that this is happening to the extent necessary to clean up balances remains elusive.
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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