PIRA Energy Group's Weekly Natural Gas, Power and Coal Market Recap for the Week Ending February 18, 2013

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U.S. Gas Import Deficit Growing Year-on-Year while EDF Sees Higher French Nuclear Output in 2013.

PIRA Energy Group

PIRA Energy Group

North American gas trade winds continue to blow toward an expanding year-on-year shortfall of net U.S. imports.

NYC-based PIRA Energy Group reports that North American gas trade winds continue to blow toward an expanding year-on-year shortfall of net U.S. imports. In Europe, seasonal demand and expected cold weather are supporting day-ahead prices. In Asia, winter LNG buying will decline rapidly to seasonal lows in the second quarter. Specifically, PIRA’s analysis of natural gas market fundamentals has revealed the following:

*U.S. Import Deficit Growing Year-on-Year

North American gas trade winds continue to blow toward an expanding year-on-year shortfall of net U.S. imports. Western Canada’s recent production rebound appears to have run out of steam, and near-term prospects look challenging. Meanwhile, U.S. exports to Mexico are poised to increase steadily year-on-year in 2H13 due to a boost from new pipeline capacity.

*Day-Ahead Prices Supported by Seasonal Demand and Cold Weather

Gas demand is well down year-on-year and versus what is normal for mid-February. However, these days mark the high point for gas use during the calendar year and that temperatures are expect to be below normal in the next 10 days. The other major price support for day-ahead levels is the strong use of U.K. storage over the past few weeks. U.K. stocks have dipped below the five-year average, which means that more of the weather-sensitive demand that will be emerging in the weeks to come will have to be met by U.K. imports from Norway and the Continent.

*Asian Winter Buying Will Decline Rapidly in 2Q

It is well understood that, in the next six to eight weeks, Asian winter buying is set to tumble from annual seasonal highs in the first quarter to annual seasonal lows in second quarter, taking spot prices and purchases down with it. With very little storage in the region, a direct line can be drawn between buying and seasonal gas demand. This winter, colder-than-normal temperatures have spurred a spot-buying frenzy, not only in the usual corners of Korea and Japan, but also in the northern regions of China, which has a similar weather profile.

NYC-based PIRA Energy Group reports that EDF recently stated that French nuclear output will be up year-on-year in 2013. In North America, PIRA estimates that January Eastern Interconnect loads were higher year-on-year. Specifically, PIRA’s analysis of electricity and coal market fundamentals has revealed the following:

*EDF Sees Higher French Nuclear Output During 2013

During the recent presentation of 2012 financial results, EDF stated that French nuclear output during 2013 will be higher Y/Y, with the expected gains exceeding PIRA's assumptions. EDF's nuclear output assumptions are bearish for shorter-term electricity balances, as PIRA has been arguing that EDF may need to cut nuclear output by a larger extent, given the weakness in French electricity demand; the higher renewable output, both in France and outside; and competitive coal-fired generation. In addition, EDF reasserted the idea that the nuclear power sold to its competitors should be priced at the full economic cost of the nuclear power.

*Eastern Interconnect Loads Increase Y/Y

Weather in the Eastern Interconnect remained warmer than normal in January, with the largest temperature departures from normal in the Southeast. PIRA estimates that loads increased year-on-year, with demand climbing in ERCOT. Net generation in the East increased by slightly less than loads, as imports from Canada rose. Northeast spot power prices surged in January as rising gas space heating loads limited volumes available to the power sector, which was forced to resort to more expensive alternatives.

*Bullish Supply Developments Unable to Prop Up the Coal Market

The coal market shrugged off bullish supply developments last week due to the lack of Chinese buying activity, and prices lost approximately $2.00/mt across the board. API#2 (Northwest Europe) prices declined by the largest extent, perhaps in an adjustment to the jump last week immediately after the strike began at the Cerrejón mine in Colombia.

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.

PIRA Energy Group
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New York, NY 10016
(212) 542- 1677

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