PIRA's 10-day outlook shows demand being consistently and strongly above normal in weather-sensitive areas.
New York, NY (PRWEB) March 27, 2013
NYC-based PIRA Energy Group reports that the recent drop in Asian LNG spot prices confirms PIRA’s belief that the seasonal dip in 2Q13 Asian LNG demand would cut into spot prices. In the U.S., year-on-year gas storage deficits are on track to be significant by the end of March. In Europe, gas demand is above normal in weather-sensitive areas. Specifically, PIRA’s analysis of natural gas market fundamentals has revealed the following:
*Seasonal Dip in 2Q13 Asian Demand to Cut into Spot Prices
The recent drop in Asian spot prices confirms PIRA's view from the last two months that the seasonal dip in second quarter Asian demand would cut into spot prices. However, this dip is only part of the story, with an equal share of the attribution going to the sudden rise in European spot prices due to a winter that seemingly will not end. Combine these two factors and PIRA believes that a shift in LNG volumes back to Europe, the Mideast, and South America and away from Asia will be occurring in the next few months.
*Storage Deficits on Track to Be Significant Year-onYear
Storage deficits are on track to be significant year-on-year by end-March. As a result, end-October storage would even fall below those carryouts marred by hurricane impacts in 2005 and 2008, without faster year-on-year builds during the injection season. More realistically, PIRA expects much narrower end-October storage deficits, and that is where higher Henry Hub prices must come into play. The cannibalization of coal-fired electricity generation in 2012 by cheap gas needs to be substantially reversed. But, there are constraints to the reduction of storage deficits including minimal production growth and lower net imports, suggesting that supply will not cause deficit reductions.
*Demand above Normal in Weather-Sensitive Areas
PIRA's 10-day outlook shows demand being consistently and strongly above normal in weather-sensitive areas. The duration of this cold snap has reached a tipping point in the PIRA outlook, where it is not only influencing PIRA’s view of the next month or quarter, but also the balance of the year. Building in the 10-day forecast, which remains exceedingly cold, PIRA's projection for the effect of weather on demand in March will top the amount above what would otherwise be normal.
NYC-based PIRA Energy Group reports that there was additional weakness in international coal pricing last week. In the U.S., coal inventories appear to be falling, except in Southeast and Southwest-central. In Europe, EEX German day-ahead electricity power prices have exhibited a considerable volatility. Specifically, PIRA’s analysis of electricity and coal market fundamentals has revealed the following:
*Additional Weakness in Coal Pricing
Coal prices continued to push markedly lower last week, with returning Colombian supply coupled with concerns over the Cyprus bailout combining for additional bearish sentiment. The weakness has manifested into a significantly wider contango, with sellers pricing prompt supply at levels to entice buyers to build stockpiles. Additionally, this weakness should cause a contraction in export supply in the Atlantic Basin in particular, as prices are below costs in some areas.
*U.S. Inventories Appear to be Falling Except in Southeast & Southwest-Central
PIRA estimates that U.S. coal stocks continued to decline in March on a year-over-year basis. Inventories appear to be falling in all regions except the Southeast and the Southwest-Central, a contrast from last year at this time. Cuts in coal production appear to be the driving force, though coal burns are up seasonally as well.
*EEX German Day-Ahead Power Prices Exhibit Considerable Volatility
With renewable generation growing at double digit year-on-year rates so far in March, EEX German day-ahead power prices have exhibited a considerable volatility, in spite of generally colder weather conditions. PIRA’s Daily Renewable Generation Forecasts report calls for declining wind generation in the upcoming 10 days, but PIRA estimates that the amount of reliable capacity needed in the upcoming 10 days is set to narrow, challenging ramping capabilities of conventional plants.
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.
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