PIRA Energy Group's Weekly Natural Gas, Power and Coal Market Recap for the Week Ending April 19th, 2015

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Counter Seasonal Gas Demand around the World Is Heating Up, while Coal-Gas Competition Returns in Focus in the U.K.

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Counter seasonal gas demand around the world is heating up, mainly in South America and the Mideast.

NYC-based PIRA Energy Group reports that counter seasonal gas demand around the world is heating up. In the U.S., the Producing Region injection build not only bested the previous April weekly record but also marked the second largest build in any month. In Europe, the impetus behind the bullish story for the summer is fading. Specifically, PIRA’s analysis of natural gas market fundamentals has revealed the following:

Global LNG Fundamentals Scorecard

Counter seasonal gas demand around the world is heating up, mainly in South America and the Mideast. Nowhere is potential incremental LNG import growth stronger than in Brazil, where a years-long drought has pushed up thermal demand for power generation significantly.

Producing Region Record Breaker

Arguably the Producing Region injection stands out the most from last week’s report. The 50 BCF build not only bested the previous April weekly record (38 BCF in 2010), but also marked the second largest build in any month. The region is now well on its way to challenging the record high April build set in 2010 when storage rose by 146 BCF.

European Gas Price Scorecard

The impetus behind the bullish story for the summer is fading. It should not be dismissed out of hand, but the worst case scenario of a supply withholding Russia, draconian Dutch cuts spearheaded by the judicial system, and stronger demand for LNG is Asia is not panning out at the moment. While people continue to shoot each other in eastern Ukraine, the gas is flowing at higher and higher rates and even the government in Kiev is talking up better prices from Russia. Hanging over the forward curve for spot prices? The unquestionable decline in oil-indexed gas prices is coming.

NYC-based PIRA Energy Group believes that coal-gas competition returns in focus in the U.K. In the U.S., spot power prices declined from February levels across most of the eastern grid. Specifically, PIRA’s analysis of electricity and coal market fundamentals has revealed the following:

Coal-Gas Competition Returns in Focus in the U.K.

Higher availability of solar and wind will continue to undermine U.K. fossil demand in the upcoming months relative to year ago levels, narrowing the switching capabilities in the U.K. market. The shift of the U.K. carbon floor from April is however making coal-to-gas switching relatively easier and the relative price of coal and gas is very close and it would only take a small change in either to increase competition between the two. Gas-fired dispatching has already seen some gains over the prior few days in response to softer NBP day ahead prices.

Western Canadian Storage Balloons

A burgeoning western Canadian storage glut stands in stark contrast to sub-normal inventories in the east that represent a 1.1 BCF/D supply sink for the rest of the injection season. While domestic storage always impacts exports indirectly, British Columbia maintenance and an impending production inflection point stand to have the biggest impact on exports, which we forecast will increase 0.2-0.3 BCF/D over the balance of the injection season. Meanwhile, new pipeline infrastructure is on the docket to support domestic growth including an expansion of the NGTL system that will take gas to northern Alberta for oil sands production. The North Montney Mainline project will serve NGTL in northeastern BC and Alberta, as well as the proposed Pacific Northwest LNG export facility, but needs an affirmation of Pacific Northwest LNG before construction.

Producing Region Record Breaker

Arguably the Producing Region injection stands out the most from last week’s report. The 50 BCF build not only bested the previous April weekly record (38 BCF in 2010), but also marked the second largest build in any month. The region is now well on its way to challenging the record high April build set in 2010 when storage rose by 146 BCF.

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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