PIRA Energy Group's Weekly Natural Gas, Power and Coal Market Recap for the Week Ending May 5th, 2013

LNG seasonal demand losses mount, while U.S. western spot power prices mixed

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PIRA Energy Group

PIRA Energy Group

While regional prices rose month-on-month, basis differentials weakened in most markets, as the Henry Hub gains proved difficult to fully match.

New York, NY (PRWEB) May 08, 2013

NYC-based PIRA Energy Group reports that demand for LNG fell from March to April and actual end user gas demand in countries importing LNG falls by even more. In the U.S., while regional gas prices rose month-on-month basis differentials weakened. In Europe, gas demand has dropped to levels not seen since 2002/2003. Specifically, PIRA’s analysis of natural gas market fundamentals has revealed the following:

*Seasonal Demand Losses Mount

Demand for LNG falls from March to April and actual end user gas demand in countries importing LNG falls by even more. A positive month on month change in LNG demand during the shoulder months of the second quarter does not even start until June, which is already well into the counter-seasonal buying period in South America, the Mideast, and Taiwan.

*Price Continued to Advance in April, but Regional Gains Fall Short of Henry Hub

While regional prices rose month-on-month, basis differentials weakened in most markets, as the Henry Hub gains proved difficult to fully match. Given the year-on-year storage deficit and unfolding net supply losses. Gas prices must ration supply to ensure storage climbs to adequate levels by end-October. This dynamic creates a mixed backdrop for regional prices going forward.

*Will Lower Demand Require Less Storage?

European gas demand has essentially dropped to levels not seen since 2002/2003. Does this mean that storage levels evocative of 2002/2003 will be required to balance the market? Given the tighter budgets and shrinking downstream margins facing many buyers and the eroding gas demand picture outside the residential/commercial sector, the answer to this question will play a significant role in the level of gas buying in the months to come.

NYC-based PIRA Energy Group reports that western spot power prices were mixed with respect to the prior month. International coal markets were somewhat mixed in April. In Europe, power markets are on an unsustainable path. Specifically, PIRA’s analysis of electricity and coal market fundamentals has revealed the following:

*Western Spot Power Prices Mixed

Western spot power prices were mixed with respect to the prior month; Southwest markets firmed on rising cooling loads and gas prices along with continued high maintenance outages in Southern California. Northwest prices were lower on a strong rise in hydro output. Compared with April 2012, Western Electricity Coordinating Council generation rose. Nuclear generation was virtually unchanged. Hydro output fell, but other renewable generation increased.

*Coal Markets Mixed in April

Coal pricing was somewhat mixed in April, with the Atlantic Basin seemingly finding a bottom and achieving some gains, while Pacific Basin prices shifted lower. The strength in the Atlantic was buoyed by the market’s expectations of stronger demand from the European Parliament’s rejection of EUA backloading. The weakness in the Pacific was driven by inexpensive supply from South Africa dragging Newcastle (Australia) prices lower.

*European Markets Set to Stay Oversupplied

Declining underlying loads, coupled with renewable and hydro generation growth, are widening the current supply glut, putting European power markets on an unsustainable path. The rigidities of retirement decisions are also contributing to this gloomy market outlook. The shift to nationally driven energy policies could be bullish for power prices, if such policies target a much-needed orderly alignment of supply with demand.

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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