PIRA Energy Group's Weekly Natural Gas, Power and Coal Market Recap for the Week Ending June 28th, 2015

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Significant Increases in LNG Supply Are Occurring Just As it Appears That LNG Demand Growth Is Stalling, while Heat Wave Set to Firm Prices

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The market has realized its first flirtation with summer 2012-type EG sector gas burns in June, triggering the first sizeable year-on-year reduction in the storage surplus.

NYC-based PIRA Energy Group believes that significant increases in LNG supply are occurring just as it appears that LNG demand growth is stalling. In the U.S., bullish July balances are ahead, but with important risks. In Europe, PIRA is building in record injection rates in the third quarter. Specifically, PIRA’s analysis of natural gas market fundamentals has revealed the following:

Global LNG Monthly Forecast

Significant increases in LNG supply are occurring just as it appears that LNG demand growth is stalling. Around 75% of the supply growth will occur in Asia through the end of 2017, which will have several forms of impact on trade flows.

Bullish July Balances Ahead, But with Important Risks

The market has realized its first flirtation with summer 2012-type EG sector gas burns in June, triggering the first sizeable year-on-year reduction in the storage surplus. Next month looms as pivotal for a gas EG upswing, and given the July 2014 huge CDD shortfall relative to the 10-year average, normal CDDs should trigger a huge year-on-year boost. However, bearish HH price risks will linger in the absence of such weather-related demand.

European Gas Price Scorecard

PIRA is building in record injection rates in the third quarter. But what if these injections do not emerge? It is automatically bullish? The central question for price formation through the end of the upcoming winter then becomes whether end October storage levels well below last year or normal levels are large enough to provide security against peak winter demand.

NYC-based PIRA Energy Group reports that heat wave set to firm prices. In the U.S., power sector coal stocks drew seasonally this month, supported by greater than normal cooling requirements over most of the country, and declining coal supply. Specifically, PIRA’s analysis of electricity and coal market fundamentals has revealed the following:

Heat Wave Set to Firm Prices

Continental prices for the front months have surged, in response to a forecast of extremely hot temperatures across several markets. The French market is typically the most exposed to extreme weather conditions, with the supply side affected heavily in the prior heat waves of 2003 and 2006. While German front prices have also been underpinned by the forecasts of hot weather, Germany remains well below its Continental counterparts. However, data from prior heat waves suggest that German prices could have further upside, especially as renewable generation tends to underperform under extreme temperatures.

U.S. Coal Stockpile Estimates

Power sector coal stocks drew seasonally this month, supported by greater-than-normal cooling requirements over most of the country and declining coal supply. PIRA estimates U.S. electric power sector coal stocks will be 166 MMst at the end of this month, or 65 days of forward demand based on our forecast of July/August average coal burn (vs. 51 days one year ago).

Dry Bulk Freight Market Forecast

Despite a recovery in the landed price of iron ore into China, steel prices there continue to paint fresh lows. The continuing slide in Chinese steel prices underlines our view that China’s steel demand fundamentals remain weak. While we have not changed our short-term freight rate outlook, the FFA market has boosted its rate expectations significantly since our last report off the back of the recent Cape rally. As a result, we are changing our Q4 outlook versus FFAs to neutral.

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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