PIRA Energy Group's Weekly Natural Gas, Power and Coal Market Recap for the Week Ending July 26th, 2015

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LNG Supply/Demand Balances Continue to Tilt Toward a Major Supply Overhang, while August Contracts Set to Stay Strong

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LNG supply/demand balances continue to tilt toward a major supply overhang.

NYC-based PIRA Energy Group believes that LNG supply/demand balances continue to tilt toward a major supply overhang. In the U.S., disappointing July electric generation is putting additional pressure on August balances. In Europe, gas demand losses have made higher storage injections somewhat superfluous for a market that is not growing. Specifically, PIRA’s analysis of natural gas market fundamentals has revealed the following:

Global LNG Monthly Forecast

LNG supply/demand balances continue to tilt toward a major supply overhang. While the length in the market has not led to lower spot prices in the past 30 days, the methods required to dispose of incremental LNG supply are becoming more creative.

Disappointing July EG Pressures August Balances

Disappointing gas performance in the power sector in July against a backdrop of only modestly milder-than-normal (~1%) weather, and robust supply growth augmented by strong net flows from Canada, are putting additional pressure on August balances.

European Gas Price Scorecard

PIRA has argued for some time that this year’s leisurely attitude toward storage accumulation is based on three principles and we believe these principles are still holding in place. One is that at least 15 years of gas demand has been lost to a combination of power sector deterioration (renewables), industrial migration to North America (lower gas prices), and efficiency gains (E.U. policy mandates) in the R/C sector. These losses have made higher storage injections somewhat superfluous for a market that is not growing and has shown over consecutive winters that the amount of incremental gas demand per heating degree day is dropping.

Central Asian Gas Major Looks to Ramp Up Gas Usage

Turkmenistan is currently implementing several major projects aimed at increasing the production and export of natural gas, as well as the projects for deep processing of gas, the country’s Ministry of Oil and Gas Industry and Mineral Resources said July 23. The total cost of these projects is $20 billion. Moreover, these projects include the second stage of Galkynysh field’s development, construction of Turkmen sector of the fourth branch of Turkmenistan-China gas pipeline with the total capacity of 30-bcm of natural gas, a plant for polyethylene and polypropylene production in Balkan province, as well as a plant for producing synthetic gasoline from natural gas in Ahal province.

NYC-based PIRA Energy Group reports that August contracts are set to stay strong. In the U.S., power sector coal stocks drew more sharply in July, despite milder than normal cooling conditions outside of the Southeast and Pacific NW, as much weaker coal supply and seasonal increases in fuel burn trimmed inventories. Specifically, PIRA’s analysis of electricity and coal market fundamentals has revealed the following:

August Contracts Set to Stay Strong

With day-ahead prices so far during July settling well above expectations, French and German front months have also been trending higher. While temperatures in these markets are now set to cool down and load factors of wind units are looking strong, a number of factors suggest that the August contracts will stay fairly strong relative to our prior expectations.

U.S. Coal Stockpile Estimates

Power sector coal stocks drew more sharply in July, despite milder than normal cooling conditions outside of the Southeast and Pacific NW, as much weaker coal supply and seasonal increases in fuel burn trimmed inventories. PIRA estimates U.S. electric power sector coal stocks will be 153 MMst at the end of this month, or 66 days of forward demand based on our forecast of Aug/Sep average coal burn (vs. 51 days one year ago).

Supply Side Adjustments Overshadowed by Demand Weakness

The coal market declined again last week, with a replay of the previous week when a weaker oil complex provided the bearish impetus. Unlike the previous week, prompt prices generally lost more ground than deferred pricing, particularly API#4 (South Africa) and FOB Newcastle (Australia). The announced delay in the rise in Indonesian coal royalties (and associated loss of Pacific Basin export supply) may have been a factor in the relative weakness in FOB Newcastle and API#4. The supply side is showing some willingness to cut, with Yancoal Australia announcing that it would scale down to a five day/week schedule from a seven day one. PIRA continues to assert that more cutbacks are needed to reach a sustainable equilibrium.

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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PIRA Energy Group
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New York, NY 10016
212-686-6808
sales(at)pira(dot)com

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