PIRA Energy Group's Weekly Natural Gas, Power and Coal Market Recap for the Week Ending August 9th, 2015

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Japan’s four-year run of record breaking LNG buying and consumption in the wake of the March 2011 Fukushima crisis is coming to an end, while the Strength in Italian Day-Ahead Prices Continues to be Largely Driven by Weather Factors

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Japan’s four-year run of record breaking LNG buying and consumption in the wake of the March 2011 Fukushima crisis is coming to an end...

NYC-based PIRA Energy Group reports that Japan’s four-year run of record breaking LNG buying and consumption in the wake of the March 2011 Fukushima crisis is coming to an end. In the U.S., lackluster production not enough to spur bullish optimism. In Europe, we've resisted being too bearish about the third quarter since well before the London Seminar in June because we saw too many risks to supply as well as a storage deficit in key support areas. Specifically, PIRA’s analysis of natural gas market fundamentals has revealed the following:

Global LNG Fundamentals Scorecard

Japan’s four-year run of record breaking LNG buying and consumption in the wake of the March 2011 Fukushima crisis is coming to an end, bringing in its wake the emerging destabilization of a key pillar of LNG demand support in Asia.

Lackluster Production Not Enough to Spur Bullish Optimism

The 20 BCF week-on-week reduction in refills was largely explained by EG gas burns ramping up by ~2.5 BCF/D to an apparent ~36.4 BCF/D, a record setting weekly tally. Indeed, the market and PIRA had anticipated a new gas EG weekly high for the Reference Week, but the reported injection suggests the “explosiveness” of gas burns was still underestimated. All in all, we continue to foresee concerns over high storage, albeit mitigated by Thursday’s meager build, trumping weak production in terms of near-term price direction. When EG gas burns rapidly diminish in the weeks ahead, the offsets needed to balance the market will be fast-rising merchant stock building and/or lower prices to drive up EG gas demand.

European Gas Price Scorecard

As many of you know, we've resisted being too bearish about the third quarter since well before the London Seminar in June. PIRA saw too many risks to supply as well as a storage deficit in key support areas. Projected demand growth in power sector use and via weather changes year-on-year did not exactly provide bullish sentiment, but bullish enough to avoid forecasting a massive sell off. Support for each of these areas has recently been shaken and warrants assessment as to their impact on the bigger picture.

NYC-based PIRA Energy Group believes that the strength in Italian day-ahead prices continues to be largely driven by weather factors. In the U.S., coal production cuts came in higher than expected for the ILB and NAPP regions in 2Q15. Specifically, PIRA’s analysis of electricity and coal market fundamentals has revealed the following:

European Electricity Markets Scorecard

The strength in Italian day-ahead prices continues to be largely driven by weather factors, with the hydro situation remaining the number one factor to watch in the near future, especially in the Northern zone. While supply discipline is underpinning the spark spreads, the back of the Italian power curve is stabilizing as a result of higher forward selling by large incumbents together with a sharp downward move in oil prices.

Atlantic Basin Coal Prices Follow Oil’s Lead Lower

Coal prices mostly moved lower yet again last week, with a notable downshift on Friday offsetting modest gains made earlier in the week. 4Q15 API#2 (Northwest Europe) prices declined by the largest extent, followed by API#4 (South Africa). FOB Newcastle prices (Australia) bucked this trend by shifting almost a dollar/mt higher than the prior week’s close. Weaker oil prices were again the impetus for the general weakness in pricing. With the coal market still fundamentally oversupplied, it should not be surprising that coal pricing is being heavily swayed by oil prices, due to the impact of oil on coal production costs. While PIRA believes that oil prices will move higher over the short-term, we believe coal pricing will continue to languish.

U.S. Coal Market Forecast

Coal production cuts came in higher than expected for the ILB and NAPP regions in 2Q15. However, this only served to staunch the bleeding, as demand weakness and gas supply growth continue to reign. Notable producer bankruptcies have now arisen. Unfortunately, more are yet to come as the market restructures itself for better days down the road.

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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212-686-6808
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