PIRA Energy Group's Weekly Natural Gas, Power and Coal Market Recap for the Week Ending September 28th, 2014

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The Ukraine Hedge: High Global Gas Stocks Emerge Outside U.S., while Sales of Electric vehicles in Europe Lagging Behind, with the Exception of Norway

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An almost completed deal among Ukraine, Russia, and the E.U. over gas deliveries this winter appears to be taking on an actual shape.

NYC-based PIRA Energy Group believes that the Ukraine hedge: high global gas stocks emerge outside U.S. In the U.S., stock build was a hair above consensus, while NYMEX gains. In Europe, final Details and credit grabbing hold up Russia/Ukraine deal for winter. Specifically, PIRA’s analysis of natural gas market fundamentals has revealed the following:

The Ukraine Hedge: High Global Gas Stocks Emerge Outside U.S.

The key short term issue overshadowing LNG markets for winter, both in Europe and in Asia is this question of whether or not high gas storage levels, witnessed across the board, are indicative of weak demand, the weather (Spain, Japan), supply insecurities vis a vis Russia (all Europe) or a supply push from Asia due to the faster and stronger than expected start-up of two trains in Papua New Guinea, which put some 9-bcm/yr. of new supply into the region during its seasonal demand lull.

Stock Build a Hair Above Consensus, While NYMEX Gains

The EIA’s reported 97 BCF stock build was a hair above consensus amidst a tight range of estimates. Comparisons to both the five-year average and last year also narrowed considerably from last week to ~18 BCF and ~15 BCF, respectively. Despite the slightly above-consensus build, NYMEX futures jumped strongly on the news, with the prompt contract initially posting a ~8¢ gain before closing at ~$3.97/MMBtu.

Final Details and Credit Grabbing Hold Up Russia/Ukraine Deal for Winter

An almost completed deal among Ukraine, Russia, and the E.U. over gas deliveries this winter appears to be taking on an actual shape. Ukraine is saying “no, no, no” up until the end and Russia is haggling over a final detail or two, but it appears that the current terms for winter supplies will be going through and all that is left is for both sides to take credit for creating the deal and for not being put in the position of accepting a deal offered to them. PIRA continues to emphasize that while a deal between Ukraine and Russia would probably be good for all parties involved, Ukraine’s gas balances are not exactly dire. The country has a sizable amount of gas in storage and is in a good position to replace direct Russian gas imports with indirect Russian gas imports via Slovakia.

Henry Hub Pricing Already Having Appreciable Impact on Future Summer NBP Prices
In the not-too-distant future, Henry Hub plus X prices will be regularly quoted in Europe and Asia. The influence – if not the outright usage – of the North American benchmark will begin to emerge in late 2015, but a look at the forward curve for Europe and Asia is already instructive.

NYC-based PIRA Energy Group reports that Sales of electric vehicles in Europe lagging behind, with the exception of Norway. Thermal coal prices continue to fall amidst high supply, weak demand. Specifically, PIRA’s analysis of electricity and coal market fundamentals has revealed the following:

Sales of EV in Europe Lagging Behind, with the Exception of Norway

While electricity demand across Europe continues to be undermined by anemic macroeconomic growth, enhanced efficiency, and relocation of industries abroad, sales of electric vehicles also appear to be lagging behind, with only Norway and, in part Netherlands, showing some more interesting developments. The impact of the electric vehicles on grid-connected load is also starting to be clearer.

Thermal Coal Prices Continue to Fall amidst High Supply, Weak Demand

Coal prices continued to decline last week, as there have been few bullish developments in the past several weeks. Prompt API#2 (Northwest Europe) and API#4 (South Africa) lost the most ground, while FOB Newcastle (Australia) prices fell to a lesser extent but remained at a considerable discount relative to API#2 and API#4. As Chinese buying will be sluggish over the peak winter period, the seasonal tightening in balances in 4Q14/1Q15 will likely be lighter than prior years. High stockpiles in Europe (as well as other markets) compound this issue.

Short-Term Outlook for Cape Freight Rates Appears Gloomy

The week ending Sept. 19 saw a marked downward correction in Cape freight rates with the four-route Cape average falling from around $17,500/day at the end of the previous week to close at just over $13,800/day. The FFA market also turned bearish, particularly with regards to market prospects in 4Q14. The paper rate for Q4 has shed $6,000/day since late-August. As a result of the decline in pricing, Cape freight rates are expected to track closely in line with paper rates, however our outlook for 2Q15 Cape rates shifts lower than FFA rates before rebounding strongly in 2H15.

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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