PIRA Energy Group's Weekly Natural Gas, Power and Coal Market Recap for the Week Ending January 18th, 2015

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Atlantic Basin Spot Loses Foothold in Asia, Where Supplies Begin to Soar, while As Forward Gas Tumbles, French Prices Move Below Key Floor

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PIRA’s latest gas price forecast pegged CY15 Gulf Coast at $3.10. The other key factor for 2015 power markets is the reduction in coal-fired capacity. About 17 GW is expected to cease burning coal this year either due to retirement or conversion to gas.

NYC-based PIRA Energy Group reports that the Atlantic basin spot loses foothold in Asia, where supplies begin to soar. In the U.S., bearish pressures mitigated, for now. In Europe, day-ahead price prepares to take a breather. Specifically, PIRA’s analysis of natural gas market fundamentals has revealed the following:

Atlantic Basin Spot Loses Foothold in Asia, Where Supplies Begin to Soar

Beyond this winter, the outlook for Atlantic Basin (AB) suppliers looking to place volumes into Asia is increasingly dim on two fronts: on the supply front, incremental volumes are pouring in regionally from PNG, with both trains fully ramped up, as well as from Australia with the commissioning of Queensland Curtis (AQCLNG) to be followed up by 3 other new projects sometime in 2H, and then another three trains between Malaysia and Indonesia, most likely in 4Q.These volumes are mostly contracted to Asian buyers, with some volumes up for grabs beyond what volumes portfolio buyers have captured.

Bearish Pressures Mitigated, For Now

Last week’s U.S. storage number came in above consensus estimates calling for a storage withdrawal in the mid-220s. The collective miss amounted to some 10 BCF, pointing to 1.4 BCF/D tighter fundamentals than anticipated. Consequently, we have marked today’s report with a bull icon despite the market’s multi-directional price action.

Day-Ahead Price Prepares to Take a Breather

We are not calling the bottom of this market for the first quarter at current levels, but we are certainly in range. PIRA sees the amount of downside price risk losing steam for the time being. Supply cuts continue to emerge to enough of an extent that Germany is withdrawing gas at higher than expected rates from storage in January. . Gas units are set to run harder during the summer, as clean spark spreads have converged versus clean dark spreads, but we are not quite there yet in terms of a demand response.

NYC-based PIRA Energy Group believes that as forward gas tumbles, French prices move below key floor. In the U.S., a key factor for 2015 power markets is the reduction in coal-fired capacity. Specifically, PIRA’s analysis of electricity and coal market fundamentals has revealed the following:

As Forward Gas Tumbles, French Prices Move Below Key Floor

French forward prices have tumbled in recent weeks, moving largely below the estimated costs of nuclear to EDF competitors (ARENH), which was previously considered a floor for the French forward prices. While total net power exports now account for a very large portion of the French balances on an annual basis (probably even larger than the ARENH volumes), the decline in the back end of the oil and gas curve has made gas-fired generation (both in France and elsewhere) more competitive against the ARENH power.

Eastern Grid/ERCOT Market Forecast: January 2015

PIRA’s latest gas price forecast pegged CY15 Gulf Coast at $3.10. The other key factor for 2015 power markets is the reduction in coal-fired capacity. About 17 GW is expected to cease burning coal this year either due to retirement or conversion to gas. This, combined with lower gas prices, results in an 11 aGW decline in coal-fired generation in the East and a 1.7 aGW drop in ERCOT. With gas-fired additions (including conversions from coal) of 6.4 GW combined with 2.5 GW added late last year, net dependable capacity will decline.

Coal Extends Losses amidst Weak Oil, European Currency Woes

Coal prices continued to test new lows last week, with general bearish fundamentals and further weakness in oil markets pressuring coal pricing lower. The continued drop in the euro gave API#2 (Northwest Europe) pricing an even larger bearish impetus with 1Q15 pricing falling sharply, while API#4 (South Africa) and FOB Newcastle (Australia) prices also declined, but by a lesser extent. With coal supply/demand fundamentals not providing much support to the market, the movements in coal pricing will continue to be largely swayed by the trajectory in oil, which PIRA continues to believe will be to the downside.

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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