PIRA Energy Group's Weekly Natural Gas, Power and Coal Market Recap for the Week Ending June 21st, 2015

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On the Pure Spot Price Side, There Is Little Support in Europe or Asia, While on the Oil Indexed Contract Level, Oil Prices Have Stabilized and Are Expected to Rise in 2H, while Flow-Based Market Coupling in Focus

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Coal pricing again moved somewhat higher last week, with FOB Newcastle (Australia) prices leading the way once more.

NYC-based PIRA Energy Group believes that on the pure spot price side, there is little support in Europe or Asia, while on the oil indexed contract level, oil prices have stabilized and are expected to rise in 2H, particularly as U.S. summer driving season kicks off. In the U.S., June balances supportive but summer downside risks remain. In Europe, several major themes will make the next 24 months a period of transition in terms of how Europe balances its demand and how this changing nature of gas supply will need to be priced. Specifically, PIRA’s analysis of natural gas market fundamentals has revealed the following:

Global LNG Fundamentals Scorecard

On the pure spot price side, there is little support in Europe or Asia, while on the oil indexed contract level, oil prices have stabilized and are expected to rise in 2H, particularly as U.S. summer driving season kicks off.

June Balances Supportive But Summer Downside Risks Remain

Weekly fundamentals for June continue to look more positive. Though Thursday’s storage report ended a three-week streak of triple-digit injections, our balances indicate injections to be lower for the next two reports.

European Gas Price Scorecard

Thank you to all who were able to attend the PIRA Seminar in London last week. The event highlighted several major themes that will make the next 24 months a period of transition in terms of how Europe balances its demand and how this changing nature of gas supply will need to be priced. We will briefly address these themes in the sections to come.

NYC-based PIRA Energy Group believes that flow-based market coupling is in focus. Despite recent coal pricing gains, PIRA retains bearish outlook. Specifically, PIRA’s analysis of electricity and coal market fundamentals has revealed the following:

Flow-Based Market Coupling in Focus    

The implementation of the Flow-Based Market Coupling is creating some uncertainties over the flows within Central Western Europe, enhancing the volatility of day-ahead prices. While we had expected that the new system would facilitate higher German flows in hours with the highest amount of renewable generation, additional volatility is stemming from the fact that the Net Transfer Capacities on specific borders are now coming up at much higher levels than in the past. Other than the interconnectors between Germany and the Netherlands, NTC between France and Belgium also appears to be largely higher than history, contributing to firmer French prices.

Despite Recent Coal Pricing Gains, PIRA Retains Bearish Outlook

Coal pricing again moved somewhat higher last week, with FOB Newcastle (Australia) prices leading the way once more. PIRA is dubious that the rally in FOB Newcastle over the past two weeks can sustain itself due to the lack of fundamental support. Further, a potential pricing cut by Shenhua in the next few days would make imported coal less competitive into China. In the Atlantic, considering the downshift in the U.S. dollar relative to the euro and the rise in dry bulk fright rates, the rise in API#2 (Northwest Europe) prices was particularly anemic. European coal burn is fading seasonally and structurally, and the constraints on supply have been limited thus far. As a result, PIRA retains a bearish outlook over the next 90 days.

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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