PIRA Energy Group's Weekly Natural Gas, Power and Coal Market Recap for the Week Ending October 19th, 2014

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Demand for Spot Volumes Remains Tepid Amid Growing Supplies, while Prospective Regulatory Changes Drive French Year-Ahead Prices

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Due to the adjustment made by Mexico’s Energy Regulatory Commission, the price of natural gas supplied to the industrial sector rose on average 6.93% this month compared with September.

NYC-based PIRA Energy Group believes that demand for spot volumes remains tepid amid growing supplies. In the U.S., modestly higher build revealed, but faster stock deficit reductions ahead. In Europe, a Ukrainian deal leaves weather to pick up lead. Specifically, PIRA’s analysis of natural gas market fundamentals has revealed the following:

Demand for Spot Volumes Remains Tepid Amid Growing Supplies

Accounting for around 61% of all Atlantic Basin (AB) spot exports to Asia, Nigeria has the most to lose when the spot market for AB volumes in Asia begins to dry up as it now appears to be doing.

Modestly Higher Build Revealed, but Faster Stock Deficit Reductions Ahead

The EIA update on October 16 revealed a 94 BCF build, modestly higher than the 90-91 BCF consensus. The injection chipped another ~2.1 BCF/D (15 BCF) off the year-on-year storage deficit, which was whittled down to 344 BCF. However, the surplus’s rate of decrease has narrowed for the past four weeks to between 1.9 and 2.3 BCF/D. This week’s stock increase was also the closest to the five-year normal (78 BCF) since early May.

A Ukrainian Deal Leaves Weather to Pick Up Lead

The combination of weather deviations from normal and an increased possibility of Ukraine and Russia normalizing its gas trade relationship for the winter is a double dose of bearishness for day ahead gas prices in the weeks ahead. Hints of an actual deal over the weekend between Russia and Ukraine will have an impact on the entire forward curve, but it is day-ahead prices that are most vulnerable to a downside move in the event of an agreement. European spot prices have been somewhat resistant to decreases in the broader energy complex over the last few weeks because of the sizable risk associated with Russian gas disruptions this winter. That is about to change.

Mexican Industrial Gas Prices Rise in October

Due to the adjustment made by Mexico’s Energy Regulatory Commission, the price of natural gas supplied to the industrial sector rose on average 6.93% this month compared with September. This is due to the updating of the Adjustment Balance that passed the Energy Regulatory Commission. The largest increase was seen in the city of Minatitlán.

NYC-based PIRA Energy Group reports prospective regulatory changes drive French year-ahead prices. Australian and South African 3Q14 coal prices approaching $60/mt. Specifically, PIRA’s analysis of electricity and coal market fundamentals has revealed the following:

Prospective Regulatory Changes Drive French Year-Ahead Prices

The French regulator CRE has released a detailed analysis of the calculation of French electricity tariffs with the new methodology proposed by the French Ministry of Energy and Economy. The analysis provides an early indication of the likely development in the ARENH price, together with a number of assumptions that are gathered from the EDF strategic plan, which will also be largely influencing the wholesale market. While the back end of the French forward curve has moved considerably up, mirroring a more likely increase in the ARENH price, the assumptions CRE is working with are very bearish for medium-term prices.

Australian and South African 3Q14 Coal Prices approaching $60/mt

Coal prices again moved lower last week on weaker oil prices, and continued concerns that Chinese import demand will deteriorate further. Despite weaker dry bulk freight rates, FOB Newcastle (Australia) prices generally lost the most ground, particularly deferred pricing. With the advent of China’s coal import tax, and no real response yet from producers, the market is skeptical that balances will recover in 2016 sufficiently for prices to increase.

Regulating Carbon: Impacts of the EPA’s Clean Power Plan

Audio recording is now available for the recent webinar for PIRA's multi client study, "Regulating Carbon: Impacts of the EPA’s Clean Power Plan Options", PIRA reviewed Clean Power Plan details, challenges, timelines and prospects. Key issues and decisions for states were identified, reflecting tight timetables and uncertain guidance from EPA. PIRA’s modeling approach and assumptions were highlighted along with illustrative examples of policy decisions and interactions. It concluded with a regional and state review of PIRA’s preliminary modeling runs, consideration of RGGI and California programs and overall projected outcomes.

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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