Coal pricing rallied somewhat this week, with a surge in FOB Newcastle pricing sparking the charge.
New York, NY (PRWEB) June 17, 2015
NYC-based PIRA Energy Group believes that the latest indicators emerging from Japan are no longer as positive as they were in the first quarter. In the U.S., while last week’s storage report caused the market to test lows in the $2.50s, we are seeing highs once more traded in the $2.90s. In Europe, LNG will play a larger role in European gas balances in the years to come. Specifically, PIRA’s analysis of natural gas market fundamentals has revealed the following:
Global LNG Fundamentals Scorecard
The latest indicators emerging from Japan are no longer as positive as they were in the first quarter, and with that comes the death knell for any real hope of significant Asian demand growth this year.
The change in weather forecasts that took hold over the weekend has shifted expectations for the current month market to a more bullish demand outlook. While last week’s storage report caused the market to test lows in the $2.50s, we are seeing highs once more traded in the $2.90s. To be fair, however, this more constructive fundamentals landscape stems only from temporary factors. Weather forecasts have supported new highs for gas-fired EG for the 2015 injection to date, and maintenance-related activity continues to leave its mark on domestic production.
European Gas Price Scorecard
At PIRA's London Seminar, gas presentations will focus in part on how LNG will play a larger role in European gas balances in the years to come. Right now LNG is playing the role of bearish threat without actually delivering the promised goods. NBP is keenly focused and almost stuck to the gas-coal switching price in the U.K., which on any given day remains in the 42-44p/th (€19.63-€20.57/MWh) zone. Limited demand growth and a storage deficit do not seem to be impetus enough to break out prices to the upside, as supply options appear to be too many in number and too sizable in volume.
NYC-based PIRA Energy Group reports that Italian day ahead prices are staging an interesting recovery. In the U.S., on-peak spot prices showed gains in May compared with April at most major hubs. Specifically, PIRA’s analysis of electricity and coal market fundamentals has revealed the following:
European Electricity Markets Scorecard
Italian day-ahead prices are staging an interesting recovery, returning well above €50/MWh so far during June. Short-term fundamental factors have been underpinning Italian prices, including the unavailability of the interconnector between Sicily and the Continent at the beginning of the month and, more recently, extremely hot weather, but more structural factors will support spark spreads along the curve.
Eastern Grid/ERCOT Market Forecast
On-peak spot prices (RT LMPs in ISO-operated markets and DA bilaterals elsewhere) showed gains in May compared with April at most major hubs. However, prices were down year-on-year at all hubs except for NY-A as lower gas prices outweighed the impact of higher weather-related loads and loss of coal-fired capacity. PIRA continues to look for weakness in gas prices and higher cooling loads to drive growth in gas-fired generation and implied heat rates. During the peak summer months, loads are expected to increase by over 12 aGW in the East, with the call on gas rising by over 20 aGW and coal down by 8 aGW. On-peak implied heat rates are expected to range upwards from 14,000 in most markets, with Ontario the only outlier. A Supreme Court decision in Michigan v. EPA (the MATS rule case) is expected to be issued soon (the Court recesses at the end of June). PIRA believes it is unlikely that the rule will be overturned, and even if it is, market impacts will be muted.
Coal Market Rallies Modestly, Little Upside
Coal pricing rallied somewhat this week, with a surge in FOB Newcastle pricing sparking the charge. 3Q15 FOB Newcastle prices increased by $2.10/mt from last week, while API#2 rose by $1.95/mt. API#4 rose by a modest-by-comparison $1.20/mt W/W. The rally in pricing is somewhat puzzling considering flat-to-down oil and gas prices, the general lack of buying activity in the Asian market, and weakness in European coal demand (particularly in the U.K. and France). The coal market remains oversupplied, with little tangible actions taken yet by producers to address the situation. PIRA continues to believe that there is not much upside for pricing currently, and the supply side needs to have low(er) prices to make the difficult decisions to rein in production and exports.
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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