We are beginning to see some interesting structural changes in how gas flows throughout Europe.
New York, NY (PRWEB) May 12, 2015
NYC-based PIRA Energy Group believes that the clock is ticking on the next large tranches of LNG supply coming out of Australia. In the U.S., the EIA reported a benign result. In Europe, we are beginning to see some interesting structural changes in how gas flows throughout Europe that will have a significant impact on the relative price relationship among the various spot benchmarks. Specifically, PIRA’s analysis of natural gas market fundamentals has revealed the following:
Global LNG Fundamentals Scorecard
The clock is ticking on the next large tranches of LNG supply coming out of Australia, and Chinese buyers will be battling time to fire up new import capacity to accommodate the expected volumes, all of which are under long-term take or pay contracts with limited destination flexibility under the current structures.
Threat of Another Record Monthly Injection Ahead?
In the follow-up to the previous week’s bullish surprise, the EIA reported a 76 BCF build, a benign result as market expectations were clustered in the 72-76 BCF range. Despite the lack of “shock” value in Thursday's release, the market clearly viewed the build with negativity. The report provided no affirmation of the bullish supply/demand backdrop inferred from the previous week’s injection, which was difficult for PIRA and most others to rationalize. As a result, NYMEX prices were pressured moments after the release, with the nearby June contract falling a dime from its high to end the day at ~$2.73.
European Gas Price Scorecard
We are beginning to see some interesting structural changes in how gas flows throughout Europe. These changes will have a significant impact on the relative price relationship among the various spot benchmarks in Europe. All of these spot benchmarks will continue to trade below the oil-indexed ceiling, but the more aggressive push (thanks to the buyers) of Russian gas into Germany and the Netherlands via Nord Stream is making the NCG/TTF relationship the most important one to watch.
NYC-based PIRA Energy Group reports that German short-term prices dive, but the back of the curve is bullish. In the U.S., weak demand fundamentals find coal consumers with rapidly growing inventories and producers struggling to rationalize excess output as low cost gas decimates coal dispatch. Specifically, PIRA’s analysis of electricity and coal market fundamentals has revealed the following:
German Short-Term Prices Dive, but the Back of the Curve Is Bullish
While the back of the German curve is being underpinned by bullish carbon policies (the recent agreement on the MSR and the proposed plan to save C02), the front of the German curve is moving into unchartered territory, with a further retreat in the dark spreads signaling extreme weakness in the fundamental picture. A perfect storm of exceptionally strong wind and solar generation combined (+40% Y/Y so far in May), together with a widening hydro surplus –in both the Alps and the Nordic markets – is in large part to blame for the price collapse. Pockets of price "strength" within Western Europe can still be found in the U.K., Belgium and to some extent in the Southern markets.
U.S. Coal Market Forecast
Weak demand fundamentals find coal consumers with rapidly growing inventories and producers struggling to rationalize excess output as low cost gas decimates coal dispatch. Commodity cost relief is keeping some producers afloat, thereby delaying the requisite supply adjustments. A number of producers are facing increasing insolvency pressures.
Egypt’s Fertilizer Producers Set to Pay for Gas in Local Currency
Egypt’s Minister of Agriculture and Land Reclamation, said the ministry reached an agreement with the Ministry of Petroleum to deliver gas allocation to fertilizer plants, in exchange for payment of gas in Egyptian pounds instead of dollars for 3 months. For that, the domestic producing fertilizer factories committed to manufacture 56% of the amount of fertilizers required by the government - the ministry is negotiating with the factories to get the remaining 44% in exchange for a negotiated price. The Minister also stressed that it will not issue any export licenses to fertilizers companies in the event of a lack of local supply.
Environmental Markets - California: Ambitious Long Term Targets Amidst Current Oversupply
Allowance trading dropped dramatically in April, though trading of puts hit an all-time monthly high, mostly at strike prices below the Auction Reserve Price. The May auction will again introduce large allowance supply – and the advance auction is at risk of being undersubscribed. Current CCA prices are in line with the low end of the expected 2016 auction reserve price. Although an aggressive interim 2030 target has been set, market signals for the ETS will take time to develop.
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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