PIRA Energy Group's Weekly Natural Gas, Power and Coal Market Recap for the Week Ending July 19th, 2015

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Another Chinese LNG Supplier at Australia’s Queensland Curtis Project Just Started up Its Second 5.5-bcm/yr Train, while Severe Heat wave continues to Underpin Italian Prices

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Given the situation in Greece and the extreme heat in portions of Europe, the relative lack of price volatility in European gas could be perceived as somewhat surprising.

NYC-based PIRA Energy Group reports that another Chinese LNG supplier at Australia’s Queensland Curtis project just started up its second 5.5-bcm/yr train. In the U.S., though the +99 BCF build did not prove to be an outsize surprise, the regional dispersion of injections merits a closer look. In Europe, given the situation in Greece and the extreme heat in portions of Europe, the relative lack of price volatility in European gas could be perceived as somewhat surprising. Specifically, PIRA’s analysis of natural gas market fundamentals has revealed the following:

Global LNG Fundamentals Scorecard

Just as economic indicators for China reach what is expected to be their low point in 2Q according to PIRA forecasts, yet another Chinese LNG supplier at Australia’s Queensland Curtis project (AQCLNG) just started up its second 5.5-bcm/yr train.

Huge Storage Surplus Still Southbound

Though the +99 BCF build did not prove to be an outsize surprise, the regional dispersion of injections merits a closer look. The less-than-expected 57 BCF injection in the Consuming East (CE) was offset by a sizable injection in the Producing Region (PR). Despite transient demand losses unfolding from the holiday in Thursday’s reported build, the quickened pace of storage injections in the PR, particularly non-salt, is hard to overlook.

European Gas Price Scorecard

Given the situation in Greece and the extreme heat in portions of Europe, the relative lack of price volatility in European gas could be perceived as somewhat surprising. But then again, that’s what happens in a well-supplied market with sizable amounts of flexible import capacity; options emerge when they are necessary. Will the same be true for the winter ahead?

British Gas to Cut 5% Off Users Bills

British Gas has been criticized, despite announcing a 5% cut in gas bills. It is the second gas price reduction in six months by the firm. The price reduction will take effect from August 27th. Critics say the cut is too small. But British Gas has said higher pipeline costs had made a larger cut impossible.

NYC-based PIRA Energy Group reports that severe heat wave continues to underpin Italian prices. In the U.S., amid weaker gas prices, power prices declined in the Northeast and ERCOT but were generally higher at MISO, SPP and Southeast hubs. Specifically, PIRA’s analysis of electricity and coal market fundamentals has revealed the following:

Severe Heat Wave Continues to Underpin Italian Prices

Italian day-ahead prices have surged in response to extremely hot temperatures, which have led to a 12% year-on-year gain for demand, or over 4.5 GWs year-on-year. The Italian forward curve has been strengthening as well, but French forward prices have been lagging behind, in spite of the fact that the French market is inherently riskier, especially during the fall and the fourth quarter.

Eastern Grid/ERCOT Market Forecast

On-peak spot prices were mixed in June compared with May. Amid weaker gas prices, power prices declined in the Northeast and ERCOT but were generally higher at MISO, SPP and Southeast hubs. Loads in the East increased by 1.2% year-on-year driven by warmer conditions in the Southeast. Gas-fired generation rose by an estimated 18%. Gas will continue to gain share during 2H15 with generation in the East up 15% year-on-year compared with an increase in total generation of 2%. However, flat loads, higher wind output, and a recovery in gas prices lead to a year-on-year reduction in generation of nearly 10% during 1H16. On-peak implied heat rates are expected to be up year-on-year in all markets during 2H15 with the largest increase in Ontario (+80%) and relatively strong gains (20-40%) at other hubs. Heat rates are mixed year-on-year during 1H16: falling in PJM, the Southeast and SPP, but rising elsewhere.

Coal Market Weakens Amid Lower Oil Pricing and Lack of Fundamental Support

Amid a backdrop of weaker oil pricing, the coal market generally moved lower last week, with price in the Atlantic Basin exhibiting the most amount of weakness as the night railroad ban in Colombia appears to be near an end. 3Q15 API#2 (Northwest Europe) and API#4 (South Africa) price faded from the prior week, while 3Q15 FOB Newcastle (Australia) ticked up marginally. Deferred pricing moved even lower across the board, with Cal-17 and Cal-18 each losing a dollar. With the U.S. dollar remaining strong, there has been little support from the fundamentals (or technical for that matter) for coal pricing, which has been in line with PIRA’s prevailing view. We continue to assert that prices will remain weak unless the supply side takes more definitive steps to tighten.

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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