PIRA Energy Group's Weekly Natural Gas, Power and Coal Market Recap for the Week Ending March 22nd, 2015

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The Asian Demand Outlook Remains Essentially Weak and Will Not Begin to Turn Around, Even in the Face of Some of the Lowest LNG Prices in Over a Year, while German Proposed C02 Plan Bullish for Off-peak Prices

PIRA Energy Group

Last week’s reported withdrawal is likely to be the last of the heating season with moderate builds projected for the next two EIA reports.

NYC-based PIRA Energy Group believes that the Asian demand outlook remains essentially weak and will not begin to turn around, even in the face of some of the lowest LNG prices in over a year. In the U.S., last week’s reported withdrawal is likely to be the last of the heating season with moderate builds projected for the next two EIA reports. In Europe, it is becoming clearer that the demand side of the gas fundamentals equation is becoming stronger, which does not surprise us given that we have been forecasting 7% growth in 2015 since late last year. Specifically, PIRA’s analysis of natural gas market fundamentals has revealed the following:

Global LNG Monthly Forecast

The Asian demand outlook remains essentially weak and will not begin to turn around, even in the face of some of the lowest LNG prices in over a year. PIRA has pared down its demand growth outlook for the year. More LNG will be coming to Europe in the months ahead, which will backstop production losses in the Netherlands and feed renewed demand for gas in the power sector, now that spot and oil-indexed prices are lower.

Bearish Price Pressures Endure Despite Tighter 1Q15 Balances

Last week’s reported withdrawal is likely to be the last of the heating season with moderate builds projected for the next two EIA reports. Despite colder-than-anticipated weather in 1Q15, which lifted demand, disrupted production and knocked ~385 BCF off PIRA’s initial end-March storage forecast, the latest projected 1,525 BCF end-of-season carryout still carries bearish price ramifications, albeit not as intensive, as our 1.8-1.9 TCF carryout anticipated in late December.

European Gas Price Scorecard

It is becoming clearer that the demand side of the gas fundamentals equation is becoming stronger, which does not surprise us given that we have been forecasting 7% growth for Europe in 2015 since late last year. The next major event to emerge in the gas market will be the beginning of peak maintenance season in Norway. The first major cuts will emerge in the second week of April, which helps to explain the 2-3p/th (€1-1.5/MWh) backwardation with the May contract. The maintenance pattern has been set for some time, so no surprises appear to face the market in the weeks ahead.

NYC-based PIRA Energy Group believes that German proposed C02 plan bullish for off-peak prices. In the U.S., coal prices continued to move lower this week, with 2Q15 FOB Newcastle prices losing nearly $4.00/mt from last week's close. Specifically, PIRA’s analysis of electricity and coal market fundamentals has revealed the following:

German Proposed C02 Plan Bullish for Off-peak Prices

Following the “Action Programme on Climate Protection 2020″ approved back in December, which aimed at bringing German GHG emissions back on track toward the set target of 40% under 1990 levels, new details on how this path could be achieved have surfaced. The proposed policy creates further emission compliance needs for power plants that are already subject to the EU ETS and is set to impact lignite generation more significantly, with a bullish impact on German off-peak power prices.

International Coal Markets Scorecard

Coal prices continued to move lower this week, with 2Q15 FOB Newcastle prices losing nearly $4.00/mt from last week's close. The decline in FOB Newcastle stemmed from price cutting by Chinese producers, forcing Australian suppliers to cut as well. Losses for API#2 and API#4 were more measured, with a weaker U.S. dollar relative to the euro, and a rally in the oil market late on Friday providing some support. While stabilization for both oil prices and the U.S. dollar are certainly welcome as far as coal market bulls are concerned, fundamentally the market remains oversupplied, and signs of a rebalancing continue to be elusive.

Environmental Markets -Drop in EU ETS Emissions in 2014

Installations under the EU ETS must submit 2014 emissions data by March 31st, and these data will be made public on April 1st. This data release is a potentially market-moving event for EUA prices, offering an opportunity to assess market length. PIRA is expecting 2014 emissions to be down year-on-year by 4-5%, with the decline concentrated in the grid-connected power sector. While such bearish fundamentals will not be ignored, participants may remain focused on negotiations surrounding the Market Stability Reserve.

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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