PIRA Energy Group's Weekly Natural Gas, Power and Coal Market Recap for the Week Ending August 24th 2014

Asia Has Room to Grow This Winter but It is Not a Sure Thing, while Flow-Based Market Coupling a Wild Card for Price Spreads

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Day-ahead prices across Central Western Europe have been diverging significantly so far this summer, with French prices considerably weaker than both Germany and Belgium.

New York, NY (PRWEB) August 27, 2014

NYC-based PIRA Energy Group believes that Asia has room to grow this winter but it is not a sure thing. In the U.S., the overweight storage build offsets the prior week. In Europe, Turkey grows but is vulnerable to Ukrainian issues. Specifically, PIRA’s analysis of natural gas market fundamentals has revealed the following:

Asia Has Room to Grow This Winter but It is Not a Sure Thing

It's a given that LNG balances will begin to tighten in the months ahead due to seasonal increases in consumption. The postponement of any nuclear restarts in Japan to sometime next year will keep the country's buying pinned to the high side, while increasingly under-utilized import terminals in China offer the potential for an immense swing in spot buying under the right weather or economic conditions. Whether Chinese buyers actually use these new import terminals to a greater extent is another question entirely and will hold the key to whether spot prices will trade at a premium to contract prices this winter.

Overweight Storage Build Offsets Prior Week

The EIA’s overweight reported injection stands as a counterpoint to last week’s underweight surprise. With market estimates for both weeks centered on the low-to-mid 80s BCF area, each “missed” the consensus by similar margins — but in opposite directions.

Turkey Grows but is Vulnerable to Ukrainian Issues

Turkey is the one market in Europe where gas demand continues to grow. For 9 consecutive months, Turkish gas demand has grown, while no other portion of Europe shows any sign of growth save recent increases in the U.K. market tied to the loss of coal and nuclear units. Relevant to the current spot market in this regard is that Turkey is buying 26-mmcm/d above contract from Russia through its connection via Bulgaria, Romania, and Ukraine, as its other flows through the Black Sea (Bluestream) are nearly full. Therefore, the threat to Turkish supplies is greater than most assume.

NYC-based PIRA Energy Group believes that flow-based market coupling is a wild card for price spreads. Seaborne coal prices finish the week down with outlook largely bearish. Specifically, PIRA’s analysis of electricity and coal market fundamentals has revealed the following:

Flow-Based Market Coupling a Wild Card for Price Spreads

Day-ahead prices across Central Western Europe have been diverging significantly so far this summer, with French prices considerably weaker than both Germany and Belgium. Conversely, Belgium day ahead prices have been moving more closely toward their Dutch counterparts. Structurally, the price spreads between France and Germany, and France with Belgium should stay wide in the upcoming months, but a wild card resides in the planned move toward the Flow-Based Market Coupling, which has some potential for delivering larger interconnection availability and, therefore higher price convergence.

Seaborne Coal Prices Finish Week Down, Outlook Largely Bearish

After slumping considerably in the early stages of the week, coal prices rebounded somewhat over the balance, although prices generally finished down week-on-week. API#4 (South Africa) prices declined by the largest extent, perhaps due to continued increases in dry bulk freight rates which cuts South African coal’s competitiveness. 4Q14 API#2 (Northwest Europe) and FOB Newcastle (Australia) prices dipped modestly, although deferred FOB Newcastle prices increased slightly from last week while the API#2 curve lost ground.

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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