PIRA Energy Group's Weekly Natural Gas, Power and Coal Market Recap for the Week Ending January 11th, 2015

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The New Year Will Be Marked By a Slowdown in the Pace of the New Supplies Originally Set to Hit the Market in 2015, while Lower Fuel Prices Undermine Power; Coal-Gas Competition Again in Focus

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PIRA's Gas Flash from two weeks ago noted that ongoing NYMEX gas price weakness partly reflected skepticism among traders taking a “show me” attitude toward forecasts of extremely cold near-term weather.

NYC-based PIRA Energy Group believes that the New Year will be marked by a slowdown in the pace of the new supplies originally set to hit the market in 2015. In the U.S., there was a price markdown despite cold weather. In Europe, the market has finally and vigorously agreed with PIRA's bearish portrayal of the European gas market over the past few months. Specifically, PIRA’s analysis of natural gas market fundamentals has revealed the following:

Global LNG Fundamentals Scorecard

The New Year will be marked by a slowdown in the pace of the new supplies originally set to hit the market in 2015. Competing pressure from even lower oil prices will only add to the start-up delays that have long been set in motion in Australia over labor, infrastructure costs and other issues.

Price Markdown despite Cold Weather

PIRA's Gas Flash from two weeks ago noted that ongoing NYMEX gas price weakness partly reflected skepticism among traders taking a “show me” attitude toward forecasts of extremely cold near-term weather. Now, consensus forecasts of such frigid conditions through midmonth have materialized. PIRA’s updated Reference Case assumes close to normal readings later in the month, which raises the overall January 2015 GWHDD tally to ~6% above the 10-year normal but still ~6% milder than a year ago. Last week's report includes an update of our Reference Case for 1Q15 and 2015 as a whole.

European Gas Price Scorecard

Better late(r) than never… The market has finally and vigorously agreed with PIRA's bearish portrayal of the European gas market over the past few months. While it took a bit longer than we thought it would in the fourth quarter for spot prices to come down, they are now accelerating at a rate that is faster than we expected. The most rapid rate of weakness is tied to three primary factors: lower oil prices, higher LNG supply, and warmer-than-normal weather in Northern Europe.

NYC-based PIRA Energy Group reports that lower fuel prices undermine power while coal-gas competition again in focus. In the U.S., coal prices continue to test multi-year lows. Specifically, PIRA’s analysis of electricity and coal market fundamentals has revealed the following:

Lower Fuel Prices Undermine Power; Coal-Gas Competition Again in Focus

The plunge in the fuel pricing complex is being partially countered by a weakening euro, but nevertheless marginal generating costs for fossil fuel units are dropping considerably, pushing German forward electricity prices to multi-year lows. So far, coal prices are dropping in tandem with oil and gas, but coal-gas competition is returning into focus. Sharply lower fuel prices and structural demand destruction in power are particularly bearish for the front of the power curve.

Coal Prices Continue to Test Multi-Year Lows

Coal prices moved sharply lower last week, in concert with the wider energy market. An approximate $6.00/Bbl decline in Brent crude oil prices severely depressed market sentiment, adding more impetus to already bearish coal fundamentals. API#2 (Northwest Europe) prices led the downward charge (likely due to weaker dry bulk rates), while API#4 (South Africa) and FOB Newcastle (Australia) also declined sharply. PIRA believes coal pricing will continue to be swayed by movements in oil markets, but coal supply and demand are not able to (indeed, cannot) react properly to the current state of weakness.

U.S. Coal Market Forecast

Global energy prices have fallen sharply in recent weeks, with mild December weather in the U.S. weakening U.S. gas and coal prices. Fossil fuel energy prices are approaching the lows last seen in the 2009 (oil and coal) to 2012 (natural gas) period with additional strength in the U.S dollar adding even more bearishness. We now project a material amount of gas-on-coal competition over the balance of 2015. While this removes most coal stockpile concerns, it suggests another round of supply destruction is under way.

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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