PIRA Energy Group's Weekly Natural Gas, Power and Coal Market Recap for the Week Ending March 3, 2013

Cool March Weather to Tighten North American Gas Balances while Disappointing Economic Data Depress Coal Market

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PIRA Energy Group

PIRA Energy Group

NYC-based PIRA Energy Group believes that cool March weather will tighten North American gas balances.

New York, NY (PRWEB) March 06, 2013

NYC-based PIRA Energy Group believes that cool March weather will tighten North American gas balances. In Europe, U.K. LNG stocks are below normal, while Peru’s output looks to be back to normal. Specifically, PIRA’s analysis of natural gas market fundamentals has revealed the following:

*Cold Start to March May Cause Year-on Year U.S. Storage Deficit to Increase

The cold start to March increases the odds of the year-on-year U.S. storage deficit surpassing PIRA’s earlier end-March target, reinforcing the SAFTI (supply available for total injections, excluding EG demand) issue. Indeed, U.S. balances should face an “inverted storage box,” where under-utilized storage capacity intensifies competition for supply between storage merchants and gas-fired electricity generators. Given the inventory gap being concentrated in the eastern U.S., HH price support is likely. A large year-on-year storage deficit in western Canada should also buoy prices in the Western U.S.

*U.K. Stocks are Below Normal

U.K. stocks are already below normal and limited in size to begin with, so additional draws on these volumes will be bullish, as LNG imports and other pipeline supplies will not come in fast enough to stem potential Norwegian losses. Relying on a single source for a majority of imports during peak demand season can prove risky, especially when factoring in that Norway has multiple markets to serve.

*Peru’s Output Looks to be Back to Normal

The exceedingly low-priced contract notwithstanding, Peru LNG itself is emerging as a strong and steady supplier of LNG exports, despite the politically risky climate in which it is operating. Peru looks to be back to normal output after an extensive November maintenance. The plant has been exporting large cargos over the past few months through February. .

NYC-based PIRA Energy Group reports that disappointing economic data depressed the coal market. In the U.S., Western Interconnect electricity loads are expected to increase year-on-year. In Europe, the move to a new market coupling system does not guarantee electricity price convergence. Specifically, PIRA’s analysis of electricity and coal market fundamentals has revealed the following:

*Disappointing Economic Data Depress Market

Disappointing economic data releases for Europe and China coupled with U.S. budget cuts from the sequester notably depressed the seaborne coal market this week. Weaker economic growth will severely limit the ability for the coal market to clear excess supply and inventory in 2013, although prices cannot fall that much further as production costs are near current pricing levels.

*WECC U.S. Loads Expected to Increase Year-on Year

WECC U.S. loads are expected to increase from the prior year in February. Net generation in the West increased with imports from British Columbia up from the prior year. Precipitation remained well below normal in February contributing to a drop in hydro generation that supported prices even as loads declined seasonally.

*Move to New Market Coupling System Still No Guarantee of Price Convergence.

The publication of the test simulations of the Flow-Based Market Coupling shows that price volatility and price divergence among coupled markets in the core of the Continent could be reduced quite considerably with the new allocation of cross-border capacity. However, a perfect price convergence cannot be guaranteed, and PIRA believes this price convergence will continue to be challenged by grid constraints, given the never-ending increase in renewable capacity and intermittency across the Continent, and in Germany in particular.

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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