PIRA Energy Group's Weekly Natural Gas, Power and Coal Market Recap for the Week Ending September 21st, 2014

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Argentina Begins Its LNG Weaning Process, while Stronger Demand and Lack of Renewable Firm Spanish Prices

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A more favorable domestic gas production growth outlook in Argentina could put LNG demand at or near its peak this year...

NYC-based PIRA Energy Group believes that Argentina begins its LNG weaning process. In the U.S., builds meets expectations; cool weather a bullish wildcard. In Europe, Italy shifts its imports; Germany plays a role. Specifically, PIRA’s analysis of natural gas market fundamentals has revealed the following:

Argentina Begins Its LNG Weaning Process

A more favorable domestic gas production growth outlook in Argentina could put LNG demand at or near its peak this year, with the outlook for next year beginning to trend down slightly, assuming normal weather in the peak buying months of May through July.

Italy Shifts Its Imports; Germany Plays a Role

Germany is buying Russian gas at a rate of 97-mmcm/d so far this year, but another 70-90-mmcm/d of Russian gas is transiting the country en route to somewhere else. It would be interesting if one of those destinations is Italy via Germany. Looking at the Italian gas numbers this month, imports via Passo Gries on the Swiss border have surged to 54-mmcm/d, which is an unprecedented level of flow for any time of year, yet alone the second lowest demand period of the year.

Romanian Government Delay Natural Gas Deregulation

The Romanian parliament's lower house on Wednesday postponed planned deregulation of household gas prices by two and a half years to July 2021 aiming to support consumers in the European Union's second-poorest state. Romania is deregulating its power and gas markets in stages for households and industrial consumers under a plan agreed two years ago linked to an aid deal led by the International Monetary Fund and the European Commission.

NYC-based PIRA Energy Group believes that stronger demand and lack of renewable firm Spanish prices. In the U.S., on-peak prices for July and August fell at all Midwest and Northeast hubs. Specifically, PIRA’s analysis of electricity and coal market fundamentals has revealed the following:

Stronger Demand and Lack of Renewable Firm Spanish Prices

Day-ahead prices in the Spanish market have been particularly strong, with higher weather-related demand and a lack of wind generation lifting fossil fuel dispatching, including combined cycles. However, structural trends – from stronger underlying demand to a more hostile regulatory framework for renewables – are also lending support to prices, with some implications also on the cross-border flows with the rest of the Continent.

Eastern Grid/ERCOT Market Forecast: September 2014

On-peak prices (now based on real-time LMPs where available) for Jul/Aug fell at all Midwest and Northeast hubs, but recorded moderate gains in the Southeast and ERCOT. Some of the weakness in the Northeast is attributable to low gas prices, cushioning the impact on margins. Falling capacity, rising weather-adjusted loads, lower gas prices and hotter weather point to sharply higher margins in the East during summer 2015.

Seaborne Coal Prices Remain Weak amidst Softening of China’s Coal Import Outlook

The coal market largely moved lower last week, although prompt FOB Newcastle (Australia) prices showed some stabilization after an extended streak of declines. Despite flattening out at the end of the week, API#2 (Northwest Europe) and API#4 (South Africa) prices declined notably across the forward curve. While the market continues to grapple with the implications of China’s new coal quality standards, PIRA believes much of the weakness in paper and physical pricing this week was generally due to high stockpiles in several markets, and the general oversupply of thermal coal.

The information above is part of PIR A 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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