Eastern spot power prices were mostly lower in April compared with March. The largest declines occurred in the Northeast markets, led by a drop of 46% in New England on-peak as heating loads faded.
New York, NY (PRWEB) May 19, 2015
NYC-based PIRA Energy Group reports that the volume and number of portfolio contracts has rapidly proliferated since 2010. In the U.S., the market’s post-April price rally seems to at least partly reflect a similar bullish perception. In Europe, the role of Algerian gas in the European balances continues to deteriorate. Specifically, PIRA’s analysis of natural gas market fundamentals has revealed the following:
Global LNG Fundamentals Scorecard
Starting low and continuing to grow, the volume and number of portfolio contracts has rapidly proliferated since 2010 bringing with it a considerable amount of market liquidity that will only deepen with the current generation of new supply that will be coming into the market through 2018.
Price Rally Mostly Perception Driven, So Far
PIRA’s late-April bullish price outlook hinged on the expectation that tighter summer gas balances would alleviate bearish pressures, especially from swollen PR storage. The market’s post-April price rally seems to at least partly reflect a similar bullish perception. But our April forecast also raised concerns about the market’s ability to continue to absorb near record-high stock builds ahead of the summer. Despite Thursday’s EIA report, we continue to foresee bearish pre-July HH price risks stemming from any sizable CDD shortfall and/or less price-driven coal-to-gas switching.
European Gas Price Scorecard
The role of Algerian gas in the European balances continues to deteriorate. Between losses tied to higher Algerian domestic gas demand and losses tied to lower European gas demand in Southern Europe, the precipitous fall off in flows to the North appears to be approaching the bottom of the cycle. Algeria has compensated, to some extent, by sending more LNG to South America and Asia in recent years, but with crude prices lower and spot LNG markets extremely soft amid rapidly growing new supplies, the Algerian LNG volume is poised to turn back in on the Atlantic Basin.
NYC-based PIRA Energy Group believes that Italian hydro heavily optimized to accommodate renewables. In the U.S., Eastern spot power prices were mostly lower in April compared with March. Specifically, PIRA’s analysis of electricity and coal market fundamentals has revealed the following:
Italian Hydro Heavily Optimized to Accommodate Renewables
Italy’s recently released official statistics for April show another sharp year-on-year loss for hydro dispatching (-31.2% year-on-year), which is a further confirmation of power generators' ability to heavily optimize their hydro assets. In a month when Italian demand (and fossil fuel requirements) was at the lowest seasonal point, power generators avoided a price meltdown by restraining hydro generation substantially. This is generally constructive for prices going forward, especially as macro-economic conditions appear more benign and the recent recovery in oil prices make the dispatching of gas units less of a necessity in the upcoming months.
Eastern Grid/ERCOT Market Forecast
Eastern spot power prices were mostly lower in April compared with March. The largest declines occurred in the Northeast markets, led by a drop of 46% in New England on-peak as heating loads faded. Three developments will affect prices and margins during the key (for both power and gas) June-August period: 1) weaker gas prices; 2) warmer weather; and 3) coal retirements. PIRA expects Gulf Coast gas markets to move above $3 during the second half of the year in response to slower supply growth and strong power sector demand. We do not expect a major swing back toward coal until the peak winter months when Gulf Coast gas prices move toward the mid $3 range and Northeast markets again trade at a premium.
Outside Market Forces Prompt Uptick in Coal Pricing
Coal prices moved modestly higher last week in thin trading on the back of a weaker U.S. dollar and rising oil pricing. API#4 (South Africa) prices rose by the largest extent in the prompt market, followed by a lesser rise in FOB Newcastle (Australia), while API#2 (Northwest Europe) prices only managed a marginal increase w/w as ARA port stocks swelled in response to a rail strike in Germany. The coal market remains oversupplied, and a large portion of the limited trading action that remains is based on technicals such as exchange rates and oil pricing. PIRA believes coal prices will remain range-bound over the next 90 days as Chinese import demand will remain soft and deliberate supply curtailments remain elusive.
Armenia’s End-Users Receive no Benefit from Wholesale Reduction
Gas prices will remain unchanged for consumers in Armenia, the Minister of Energy and Natural Resources told a press conference on Wednesday, May 13. After long negotiations, the Russian gas price at the border was lowered but the reduction will not affect consumers in Armenia, Yervand Zakharyan said, according to ARKA. The price of the Russian gas supplied to Armenia will be as per the agreement reached between the Gazprom board of directors chair Aleksey Miller and President Serzh Sargsyan in April.
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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