PIRA Energy Group's Weekly Natural Gas, Power and Coal Market Recap for the Week Ending February 24, 2013

Tighter Global LNG supplies to keep Asian spot prices from normal second quarter dip; while in Europe biomass usage increases

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PIRA Energy Group

PIRA Energy Group

The tightening of gas balances that is under way is largely a result of weather-driven demand gains following a return of more normal weather than seen last year.

New York, NY (PRWEB) February 27, 2013

NYC-based PIRA Energy Group believes that tighter global LNG supplies will keep Asian spot prices from their normal second quarter dip. In the U.S., the tightening of gas balances is under way in the months ahead. In Europe, colder-than-normal temperatures will continue to support spot gas prices. Specifically, PIRA’s analysis of natural gas market fundamentals has revealed the following:

*Tighter LNG Supplies to Keep Asian Spot Prices from Normal Second Quarter Dip

Tighter LNG supplies will keep Asian spot prices from their normal second quarter dip. Prices will drop from the current peak, but not with the same velocity seen in the past few years. New import terminals in Asia, combined with a tighter supply situation caused by Egyptian and Nigerian reductions, will make LNG supply less expendable.

*Gas Balances to Tighten in the Months Ahead

The tightening of gas balances that is under way is largely a result of weather-driven demand gains following a return of more normal weather than seen last year. Not only has residential/commercial, and industrial heating demand swelled, but the positive impact of the colder weather on electric loads has mitigated the detrimental effect of less coal-gas switching in the power sector. Given record-breaking warmth in March 2012, balances should prove to be even tighter next month, as larger year-on-year heating load gains materialize.

*Colder-Than-Normal Temperatures to Support Spot Prices

Colder-than-normal temperatures will continue to support spot prices through the end of the month, even though temperatures are not nearly as cold as last year. Year-on-year demand has dropped in February, but the amount of risk associated with finding incremental supply has gone way up. One of the most interesting aspects of the change in supply availability has been the westward flow of Dutch gas into the Belgian market this winter.

NYC-based PIRA Energy Group reports there is an increasing usage of biomass in the European energy sector. The international coal markets were lifted by supply constraints last week. Specifically, PIRA’s analysis of electricity and coal market fundamentals has revealed the following:

*Increasing Biomass Usage in the European Energy Sector

The freshly released statistics for 2012 show a surge in German renewable generation in the power sector on a year-ago basis. The lion's share of renewable generation remains wind, while solar generation has also gained quite significantly year-on-year. Interestingly, biomass generation has been also very strong (beyond municipal waste, biomass includes forestry residuals, agricultural by-products, and energy crops). Increasing usage of biomass needs to be closely watched, not only in Germany, but also across Europe. The current costs assumptions imply that burning of biomass will become an increasingly popular alternative in the heating and cooling sector as well, curbing gas and gasoil consumption.

*Supply Constraints Lift Coal Market

Coal prices largely increased last week, although the bullish turn in prices lost steam on Friday. With the strike at the Cerrejón coal mine in Colombian persisting, 2Q13 API#2 (Northwest Europe) prices increased by the largest amount. Since the issues that are constraining both Cerrejón (labor) and Drummond (regulatory) could be lifted at any time, it is difficult to gauge the market at the moment. However, with Chinese buying activity expected to resume following the Lunar New Year, pricing should see some upward momentum.

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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