Amid lower prices and a more competitive position in the fuels market, PIRA has increased its gas demand growth projection for 2015.
New York, NY (PRWEB) February 04, 2015
NYC-based PIRA Energy Group believes that rules will be rewritten on long-term LNG contracts. In the U.S., there was a reported withdrawal. In Europe, gas demand growth raised amid lower prices and plentiful supply. Specifically, PIRA’s analysis of natural gas market fundamentals has revealed the following:
Rules Will Be Rewritten on Long-Term LNG Contracts
To sign or not to sign, that is the question for 2015 — a year in which many long-term contracts need to be signed in order to finance future LNG supply. For sellers, options are limited, although more quantitative easing and low risk borrowing keep more players in the game. For buyers, options are becoming limitless. The distancing of these two market views is creating more uncertainty in the long-term balances, although the next one to three years looks pretty clear.
More Riding on February Weather
Last week’s reported 94 BCF withdrawal marked yet another 10+ BCF “miss” versus a consensus of 108-110 BCF. This report appears to confirm last week’s looser balances. More specifically, both figures imply a supply/demand backdrop that is ~1.5 BCF/D looser than expectations, which in turn adds to the bearish inventory trajectory for end-March.
European Gas Demand Growth Raised Amid Lower Prices and Plentiful Supply
Amid lower prices and a more competitive position in the fuels market, PIRA has increased its gas demand growth projection for 2015. The increases are led by a modest recovery in industrial use and a more competitive position for gas relative to coal. Add in higher stock injections, and we are looking at a relatively positive story on the demand side for the first time since 2010. However, the major problem for spot sellers is that contract gas nominations by Russian buyers are going to grow and grow as the second and third quarters pass. In the short term, Asian gas demand crashes in the second quarter relative to the rest of the year on an annual basis, so LNG supplies will be taking a much more aggressively competitive role in the European market.
Omani Industry Requests Gas Price Hike Revision
Sohar-based industries, which are using natural gas as energy, have asked the Omani government to consider the recent doubling of natural gas price in a phased manner over a five-year period. Oman government has doubled natural gas price with effect from this month and an annual increase of 3% thereafter. Fifteen major consumers of natural gas in Sohar’s industrial area are affected by the recent increase in natural gas price.
NYC-based PIRA Energy Group believes that French nuclear generation remains strong; gas units more competitive. In the U.S., spot energy prices continued to fall in January with warmer-than-normal weather in the West and another sharp drop in gas prices. Specifically, PIRA’s analysis of electricity and coal market fundamentals has revealed the following:
French Nuclear Generation Remains Strong; Gas Units More Competitive
The recovery in French nuclear generation continued in January, with output moving higher once again by 2.4% year-on-year to average 58.7 GWs, which follows a year when French nuclear output has exceeded the most optimistic expectations. As in prior months, French nuclear generation appeared less sensitive to the lack of domestic demand growth in France, together with lower needs from Belgium, whose imports from France remain well below year-ago levels, having been replaced with cheaper Dutch gas-fired generation. We will have to wait for the European Central Bank's (ECB) financial bazooka to work out its full objective of resurrecting the struggling European economy, but in the meantime demand remains still weak, while lower oil and gas prices are now bringing gas-fired generators back into the picture.
Western Grid Market Forecast
Spot energy prices continued to fall in January with warmer-than-normal weather in the West and another sharp drop in gas prices. Following a wet December, California has received little precipitation in January, and Sierra snowpack remains at very low levels. We have reduced the California hydro generation forecast to 2 aGW from 2.7 aGW last month. The Columbia River Basin has also been drier than normal this month, although warm weather kept runoff and generation relatively strong. Runoff projections have been reduced, however, and we have cut output forecasts for late winter, spring and summer. Mid-Columbia heat rates are expected to rise in 2015. That view has been reinforced by deterioration in the runoff outlook. Southwest markets should also see stronger heat rates in CY2015. These will be supported by demand growth in some inland markets, lower gas prices, and the downward revision to the California hydro outlook.
Cal-16 Forwards’ Decline Overdone; PIRA Turns Slightly Bullish
Coal prices continued to exhibit weakness last month, as a plummeting oil market pressured coal prices lower. Weaker dry bulk right rates, coupled with a seasonal uptick in Chinese buying activity, kept FOB Newcastle (Australia) prices somewhat supported relative to its Atlantic Basin counterparts. CIF ARA (Northwest Europe) prices declined considerably, with freight market weakness and potential competition from natural gas in the UK depressing pricing. Fundamentals point to a continued sluggish recovery and we remain bearish for 2015; however, 2016 forwards seem to have fallen too far.
Increased Iron Ore Supply Supportive of Rate Recovery
We have a moderately bullish Cape outlook for 2H15. More iron ore supply is scheduled this year and the iron ore price remains low. Although we foresee very limited growth in Chinese steel production in 2015, we expect iron ore import substitution and tightening Cape utilization to support rates later in the year.
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.
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