PIRA Energy Group's Weekly Natural Gas, Power and Coal Market Recap for the Week Ending November 30th, 2014

Share Article

Europe Temporarily Moves Into a Central Role for Global LNG Price Formation, while German Policy Makers Target High-Emitting Generation

News Image
How long will day-ahead prices continue to minimize the nature of supply/demand fundamentals?

NYC-based PIRA Energy Group believes that Europe temporarily moves into a central role for global LNG price formation. In the U.S., NYMEX was not impressed by impressive U.S. stock draw. In Europe, market looks the other way on fundamentals, embraces the cold. Specifically, PIRA’s analysis of natural gas market fundamentals has revealed the following:

Europe Temporarily Moves Into a Central Role for Global LNG Price Formation

It’s still relatively early on in the winter peak, but the near term balances are looking noticeably looser than they did ahead of October, with Asian weather so far offering no support whatsoever on the demand side, though it is starting to emerge in Europe.

NYMEX Not Impressed by Impressive U.S. Stock Draw

Last week’s day early pre-Thanksgiving U.S. storage update reflected a blockbuster draw rarely seen outside peak heating December through February periods. The “consensus” low-150s outlook could be labeled partly misleading given its unusually wide 130s to 160s range that encompassed large support at both ends, together with a standard deviation more than twice the past month’s weekly norm.

Market Looks the Other Way on Fundamentals, Embraces the Cold

How long will day-ahead prices continue to minimize the nature of supply/demand fundamentals? It looks like it could be awhile, as the weather outlook is turning colder than normal in some key demand markets. When this turn happens prior to the official start of winter, it can have a magnified influence on prices in the short term. PIRA is comfortable with supply availability for the market, but the forward curve reflects a growing lack of conviction and will continue to evoke a mood where a long position is the safest place to be.

NYC-based PIRA Energy Group reports that German policy makers target high-emitting generation. Unless the weather in Europe remains cold for most of the winter period, high coal stockpiles, persistent renewable generation growth, and rising Colombian exports will keep CIF ARA prices low. Specifically, PIRA’s analysis of electricity and coal market fundamentals has revealed the following:

German Policy Makers Target High-Emitting Generation

In Germany, a plan to further curb carbon emissions is being drafted, with the numbers being discussed (22 MT by 2020 for the power sector only) large enough to make gas more influential in winter price formation. At a time when energy intensive end-user demand appears extremely weak and macroeconomic indicators look shaky, the German coalition is therefore facing new dilemmas.

Long Called for Supply Discipline Finally Appears

The first instance of supply discipline by Glencore has given some support to the FOB Newcastle (Australia) market, particularly as seasonal demand in Asia is ramping higher. 2015 Pacific Basin coal fundamentals are expected to remain weak, with new production capacity coming online in Australia, and China’s new import tax deflating imports. CIF ARA (Northwest Europe) prices moved notably higher this past month due to higher European gas prices, colder weather, and some technical trading support. Unless the weather in Europe remains cold for most of the winter period, high coal stockpiles, persistent renewable generation growth, and rising Colombian exports will keep CIF ARA prices low.

Iron Ore Pricing Woes a Boon for Dry Bulk Freight Rates

Cape freight rates this for 3Q14 have now moved closer to the pattern seen in 2011 and 2013, but continued strength appears limited. Recent cape rates have been held up in large part by a jump in transatlantic rates spurred by the recent cold snap in the Atlantic Basin which appears to have encouraged additional coal movements to Europe. In Asia, there is little to suggest any fundamental improvement in underlying demand and Chinese iron ore buyers are hardly under pressure to seek out ore supplies with prices continuing to nosedive in an oversupplied market. For the moment, we see limited prospects for a late surge in rates this year.

U.S. Coal Stockpile Estimates

While coal stocks are on track for a typical seasonal build this month, regional distinctions abound as PRB-consuming regions in the central U.S. are below target. In total, U.S. electric power sector (EPS) coal inventories will be 138 MMst as of the end of this month or 54 days of forward demand (versus 60 days one year ago).

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.

PIRA Energy Group
3 Park Avenue, 26th Floor
New York, NY 10016
212-686-6808
sales(at)pira(dot)com

Share article on socal media or email:

View article via:

Pdf Print

Contact Author

Media Relations
PIRA Energy Group
+1 (646) 448-6395
Email >
@PIRAEnergyGroup
Follow >
PIRA Energy Group
Like >
Visit website