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

Share Article

Weighted Average LNG Spot Prices in Asia At Sustained Low For First Time Since Recession in 2009, while Outcome of U.K. Capacity Auction Bullish for 2015-2018 Wholesale Power Prices

News Image
The last time weighted average LNG spot prices in Asia dropped below $10/MMBtu for a sustained period was in the teeth of the recession in 2009.

NYC-based PIRA Energy Group reports that weighted average LNG spot prices in Asia are at sustained low for first time since recession in 2009. In the U.S., EIA-reported storage draw was on the cusp of a second straight bullish update relative to a low 60s “consensus.” In Europe, steady declines in spot prices in Europe will continue emerge in the weeks to come. Specifically, PIRA’s analysis of natural gas market fundamentals has revealed the following:

LNG Monthly Forecast

The last time weighted average LNG spot prices in Asia dropped below $10/MMBtu for a sustained period was in the teeth of the recession in 2009. At that point, demand had collapsed and Fukushima had not yet happened. The current situation could not be more different, as economic growth is strengthening, crude prices are dropping, and Japan is still without nuclear power. The key to this group is the falling price of crude, which is pushing down the ceiling on contract gas prices.

January Comparisons Tough on Market Bulls

Last week’s EIA-reported 64 BCF storage draw was on the cusp of a second straight bullish update relative to a low 60s “consensus.” As observed below, the draw confirmed structurally improving gas demand in the power sector. But the draw was only a small fraction of the year-ago pull (256 BCF) and five-year average (157 BCF), owing to much higher year-on-year production and the year-on-year reversal of R/C heating loads (from unusually high to severely depressed).

European Gas Scorecard

Steady declines in spot prices in Europe will continue emerge in the weeks to come. Weather does not look like it is going to rescue demand for the balance of the month despite previous considerable warnings from well-respected weather forecasters. PIRA is still somewhat surprised that NBP is as strong as it is on a prompt basis, but reduced Russian nominations and lower Dutch production have played a critical role in balancing the increase in LNG imports in the north and south of the Continent.

Korean Emissions Trading: Regulatory Updates, Impact of Lower LNG Prices

New information was released ahead of the planned start of the mandatory Korean cap-and-trade system in January 2015 — which brings an explicit price on carbon emissions to a major Asian economy. The government’s reference price will play a crucial role in guiding this market, with trading limits also important. Declining LNG prices lower the expected range of “implied CO2 prices” that would incentivize power sector fuel switching — although these remain well above reference price levels.

NYC-based PIRA Energy Group believes that the outcome of U.K. capacity auction is bullish for 2015-2018 wholesale power prices. In the U.S., coal prices continue to decline. Specifically, PIRA’s analysis of electricity and coal market fundamentals has revealed the following:

Outcome of U.K. Capacity Auction Bullish for 2015-2018 Wholesale Power Prices

The first U.K. capacity auction for 2018 cleared at a much lower-than-expected price. A vast majority of small scale plants, including OCGT and reciprocating engines, CHP and self-generating plants have displaced larger conventional capacities, especially large coal plants. The outcome is mildly bullish for wholesale prices going forward, as large portions of the existing capacities that were excluded will have to recover their fixed costs in the wholesale market, with the lifetime extension of key coal plants now more uncertain.

Coal Price Declines Continue

The coal market continued to search for a bottom this week, with 1Q15 forwards falling by $1.00/mt or more and steeper losses farther along the forward curve. Continued softness in the oil market is depressing the wider energy complex, while coal fundamentals have done little to buck this trend. While Glencore's Australian cutback started this week, Indonesia's plans to control domestic production and exports have been thwarted by budgetary needs, and supply availability is high.

"Regulating Carbon" Study Webinar Slides and Recording

A recent webinar summarizes some of the key take-aways from PIRA’s special study on EPA’s proposal to regulate carbon emissions from existing power plants, with details on PIRA's modeling structure, scenarios and sensitivities. Also discussed were considerations for legal challenges and a regulatory update, hinting at revisions for the final rule.

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