PIRA Energy Group's Weekly Natural Gas, Power and Coal Market Recap for the Week Ending April 28, 2013

Lower LNG Asian Demand Loosens Balances, while International Coal Prices Rebound Slightly.

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PIRA Energy Group

PIRA Energy Group

In the U.S., large year-on-year gas storage deficit propels Henry Hub cash prices.

New York, NY (PRWEB) May 01, 2013

NYC-based PIRA Energy Group reports that LNG balances have loosened up considerably since the end of March. In the U.S., large year-on-year gas storage deficit propels Henry Hub cash prices. In Europe, weather limits risk to the downside of the gas markets. Specifically, PIRA’s analysis of natural gas market fundamentals has revealed the following:

*Lower Asian Demand Loosens Balances

After a tight 1Q13 quarter replete with supply disruptions and significant boosts coming from weather-related demand for gas, LNG balances have loosened up considerably since the end of March. Even without the addition of new supply from Algeria and Angola, seasonal demand losses from Asia, combined with more selective spot buying from Europe and South America, has put a significant dent in Asian spot prices. PIRA expects the drop in Asian spot prices to influence a broader swathe of LNG spot deals around the world.

*Large Year-on-Year Gas Storage Deficit Propels Henry Hub Cash Prices

The still stubbornly large year-on-year gas storage deficit has propelled Henry Hub (HH) cash prices markedly higher over the last month or so, but a modest reduction in the deficit looks on the horizon by mid-year. However, protracted net U.S. supply declines, coupled with non-Electricity Generation (EG) demand growth, will make reducing storage deficits strictly from gas give-backs to coal EG a difficult task. In this regard, we continue to envision near-term HH gas price risks as upwardly biased.

*Weather Limits Risk to the Downside

Even now, the outlook for colder than normal weather persists and is limiting the pace of the downward slide, but the market is unequivocally tilting to the short side with storage deficits being the only real factor to offer bullish support. Temperature deviations from normal have added to demand in the form of colder than normal weather in the winter and warmer than normal weather in the summer. Initial April estimates show incremental demand large enough to justify price support.

NYC-based PIRA Energy Group reports that international coal prices largely increased rebounding from sizeable losses that occurred in the prior week. In Europe, in spite of lower nuclear output, coal and lignite generation appear to be up only modestly relative to 2012 levels. Specifically, PIRA’s analysis of electricity and coal market fundamentals has revealed the following:

*Coal Prices Rebound Slightly

Coal prices largely increased last week, rebounding from sizeable losses that occurred in the prior week. API#2 (Northwest Europe) prices fared best, while API#4 (South Africa) and FOB Newcastle (Australia) prices both posted moderate increases. PIRA continues to believe that the coal market remains oversupplied, and either enhanced production discipline or growth in demand is needed to recalibrate balances.

*Higher Hydro and Renewables Hit Fossil Fuel Needs Across Europe

Weather needs so far this year are being offset by higher hydro output, together with generally stronger availability of power from renewable sources. In spite of lower nuclear output, fossil fuel needs have been sharply lower so far during 2013, with gas demand suffering a huge toll, while coal and lignite generation appear to be up only modestly relative to 2012 levels.

*Brunei and Tepco Modify Deals

The total restructuring of Brunei LNG’s contracts with long-term Japanese and Korean buyers starting this month includes a new 10-year deal with Shell as a portfolio buyer. The new deal highlights the difference between the LNG market’s past and its future. Still, the substantial contract volume alterations, which will see Tepco’s volumes reduced, Kogas’ volumes increased and Shell enter as a new type of buyer for Asian suppliers is in part a vestige of the pre-Fukushima market reality in which this restructuring was probably negotiated.

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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