PIRA Energy Group's Weekly Natural Gas, Power and Coal Market Recap for the Week Ending March 8th, 2015

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The Emerging Slew of First-time LNG Importers Set to Bring in Cargos Beginning This Month Is Actually One Significantly Bullish Indicator for the Market in an Otherwise Weak Environment, while Italian Prices More Aligned with Continent given Gas Stocks Are Being Optimized More Aggressively

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The emerging slew of first-time LNG importers set to bring in cargos beginning this month is actually one significantly bullish indicator for the market in an otherwise weak environment.

NYC-based PIRA Energy Group believes that the emerging slew of first-time LNG importers set to bring in cargos beginning this month is actually one significantly bullish indicator for the market in an otherwise weak environment. In the U.S., as winter’s chapter approaches its closure, it is increasingly apparent that little has occurred to arrest fears of a structurally oversupplied market. In Europe, the recent slide in European spot prices is trending towards the PIRA forecast for March and the summer months. Specifically, PIRA’s analysis of natural gas market fundamentals has revealed the following:

Global LNG Fundamentals Scorecard

The emerging slew of first-time LNG importers set to bring in cargos beginning this month is actually one significantly bullish indicator for the market in an otherwise weak environment. The question is: How much if any, LNG will they actually import?

April/May Balances Require “Heavy-Lifting” by the Power Sector

Recent NYMEX trading suggests that the market is shifting its attention to the start of the injection season. As winter’s chapter approaches its closure, it is increasingly apparent that little has occurred to arrest fears of a structurally oversupplied market. Thus, prices look poised to remain under pressure as April/May will need to achieve extremely robust electric generation burns to curb the pace of injections heading ahead of summer.

European Gas Price Scorecard

The recent slide in European spot prices is trending towards the PIRA forecast for March and the summer months. Assisting this slide will be the projected closure of several gas plants in Germany and the U.K. after several months of gains in aggregated gas use. The magnitude of the recent gains for gas-fired dispatching (and the spark spreads) in the U.K will face a number of headwinds in the months to come, ranging from the expected growth in renewable or decentralized generation, together with demand destruction.

NYC-based PIRA Energy Group believes that Italian prices more aligned with continent, while gas stocks are being optimized more aggressively. In the U.S., the coal market moved notably lower again last week, with strength in the U.S. dollar coupled with weaker oil and gas prices providing much of the downside impetus. Specifically, PIRA’s analysis of electricity and coal market fundamentals has revealed the following:

Italian Prices More Aligned with Continent, While Gas Stocks Are Being Optimized More Aggressively

The launch of the market coupling and the end of the green obligation quota for suppliers are removing key barriers for the integration of the Italian market in the wider European context, making Italian prices more aligned to its French counterparts. It's nevertheless interesting to note that further price convergence during February occurred when Italian fossil fuel generation was considerably up year-on-year, with the dynamics in the gas markets helping to explain the narrowing gap.

Bearish Sentiments Plentiful in Thermal Coal Markets

The coal market moved notably lower again last week, with strength in the U.S. dollar coupled with weaker oil and gas prices providing much of the downside impetus. FOB Newcastle (Australia) prices lost the most ground, with prices falling below levels last seen before the announcement that Glencore was going to cut 15 MMmt in 2015. With the U.S. dollar continuing to appreciate, Brent crude oil prices back below $60/Bbl, and a Russia/Ukraine deal reached to deliver gas through the end of March, negativity abounds in the seaborne coal market, and PIRA's short-term bearish outlook stands.

U.S. Coal Market Forecast

While HDDs across the eastern U.S. surpassed prior year conditions, sub-$3/MMBtu gas in most locations shifted most non-renewable load to natural gas. With gas production up strongly, and gas stocks up year-on-year, we expect significant coal-to-gas switching in 2015. As coal stocks continue to build, U.S. coal producers face severe over-supply issues, exacerbated by cash flow concerns. The low energy cost environment is not going away any time soon.

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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