PIRA Energy Group's Weekly Natural Gas, Power and Coal Market Recap for the Week Ending April 26th, 2015

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Sizable Volumes of New Production Capacity Will Be Coming Online in the Next 12 Months, but the Ramp Up On Contracts Tied to this Capacity Will Lag Behind by a Considerable Margin, while German Summer Prices Trading Around Their Fundamental Floor

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Sizable volumes of new production capacity will be coming online in the next 12 months, but the ramp up on contracts tied to this capacity will lag behind by a considerable margin.

NYC-based PIRA Energy Group reports that sizable volumes of new production capacity will be coming online in the next 12 months, but the ramp up on contracts tied to this capacity will lag behind by a considerable margin. In the U.S., the year-on-year U.S. storage surplus is well on its way to inflate an additional ~100 BCF by end-month. In Europe, the approach to storage management and the acquisition of supply are quite different from normal at the beginning of the 2015 injection season. Specifically, PIRA’s analysis of natural gas market fundamentals has revealed the following:

Global LNG Monthly Forecast

Sizable volumes of new production capacity will be coming online in the next 12 months, but the ramp up on contracts tied to this capacity will lag behind by a considerable margin. In addition, expiring contracts on existing LNG projects offer additional supply to the trading mix, most notably from Indonesia.

Bearish Bidweek Concerns

The year-on-year U.S. storage surplus is well on its way to inflate an additional ~100 BCF by end-month. The implications of such a massive year-on-year increase will carry forward given that weekly stock builds ahead increasingly must fall below last year’s record pace. Certainly, these issues will make May Bidweek (concluding next Monday) all the more interesting as a test of whether last month’s price action that dragged the prompt month decidedly lower will be repeated.

European Gas Price Scorecard

The approach to storage management and the acquisition of supply are quite different from normal at the beginning of the 2015 injection season. The normal rules and assumption will not apply because of the sizable decrease in oil-indexed prices in the coming months, which are causing all kinds of unique optimization plays. The two part net effect on spot prices becomes like a funhouse trick, where the deeper you head into the room, the lower and lower the spot price ceiling becomes.

Mexican Energy Reforms + Low Oil Prices = Faster Growing Call on U.S. Gas

PIRA foresees Mexican energy policy reforms, coupled with low oil prices, increasing the nation’s dependency on U.S. gas exports. Reforms to stimulate foreign investments were aimed to revitalize domestic oil and gas resource development, as well as upgrade critical infrastructure, but the collapse of oil prices has undercut resource investments and depleted already capital-short PEMEX. By comparison, reforms targeting private infrastructure investments are gaining strong traction, signaling more positive momentum for gas demand, especially gas-fired power generation. Stronger gas demand and stiffer domestic gas production headwinds should boost the call on U.S. exports from 2.0 BCF/D in 2014 to 5.6 BCF/D by 2020.

NYC-based PIRA Energy Group believes that German summer prices are trading around their fundamental floor. In the U.S., power sector coal stocks have surged upward this month as cheap natural gas and a lighter nuclear refueling schedule versus last year, have slashed coal burn. Specifically, PIRA’s analysis of electricity and coal market fundamentals has revealed the following:

German Summer Prices Trading Around Their Fundamental Floor

The German summer forward prices have been trending lower, in spite of somewhat resilient marginal costs of coal-fired generation. While German solar generation has set new records as of late, PIRA believes that the German 3Q baseload prices are unlikely to see further losses, with a lack of hydro availability in the Alps and a relatively firmer French market among the supporting drivers.

U.S. Coal Stockpile Estimates

Power sector coal stocks have surged upward this month as cheap natural gas and a lighter nuclear refueling schedule versus last year, have slashed coal burn. PIRA estimates U.S. electric power sector coal stocks will be 181 MMst as of the end of this month, or 91 days of forward demand based on our forecast of slack May/June average coal burns (versus 57 days one year ago).

Environmental Markets - Ontario to price carbon, join CA and QC

Ontario, with plans for GHG regulation in the works for years, committed to a provincial cap and trade program to be ultimately linked with Quebec and California. In the past, Ontario has taken steps towards carbon pricing only to pull back, but momentum is favoring the recent efforts. Data released last week provides emissions trends of Ontario’s largest stationary source installations and sectors. Canada’s released GHG Inventory offers data on Ontario top-down provincial emissions totals.

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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