PIRA Energy Group's Weekly Natural Gas, Power and Coal Market Recap for The Week Ending June 16th, 2013

Asian LNG Demand Heads Toward Summer Peak Buying, while German Deferred Power Prices to Factor in Regulatory Risks

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PIRA Energy Group

PIRA Energy Group

Until recently, near-term U.S. gas trade dynamics have centered on Canada. While a sizable deficit in eastern inventories, which supply Canadian demand centers, will impact net flows to the U.S., gas trade with Mexico now has moved to the forefront.

New York, NY (PRWEB) June 19, 2013

NYC-based PIRA Energy Group reports that Asian LNG demand heads toward summer peak buying. Mexican gas flows move to trade forefront. In Europe, the need for stronger injections remains. Specifically, PIRA’s analysis of natural gas market fundamentals has revealed the following:

*Asian Demand Heads Toward Summer Peak Buying

Time is running out to secure last minute spot deals ahead of the Asian summer peak, and it appears that buyers with last minute requirements for July and August remain unruffled, particularly as Shell has just announced the end of a May 19 force majeure for Nigeria LNG and operators of Norway’s Snohvit announced that the plant will be shipping LNG again in the coming days. Asian spot price assessments for July are still hovering in place after gaining some strength in recent weeks on prolonged Nigerian shortfalls.

*Mexican Flows Move to Trade Forefront

Until recently, near-term U.S. gas trade dynamics have centered on Canada. While a sizable deficit in eastern inventories, which supply Canadian demand centers, will impact net flows to the U.S., gas trade with Mexico now has moved to the forefront. Mexico’s sizable acquisitions of costly LNG spot cargoes further attest to its lack of gas supply. Incremental U.S. flows into Mexico barely scratch the surface of domestic supply deficits tied to declining production.

*The Need for Stronger Injections Remains

It is clear from the European supply/demand balances that the call on gas supply will need to accelerate in the third quarter if gas storage levels are going to come anywhere near the five-year average or 2012 levels by the end of October.

NYC-based PIRA Energy Group reports that German deferred power prices to factor in regulatory risks. In the U.S., gas rally fades as cooling loads disappoint. Specifically, PIRA’s analysis of electricity and coal market fundamentals has revealed the following:

*German Deferred Power Prices to Factor in Regulatory Risks

German power prices should start factoring in higher risks of a significant policy change, as the major electricity market is on a clear unsustainable path. The German Calendar 2014 contract is unlikely to reflect these risks, since the degree of the required re-regulation is such that it will take time after the general elections to lead to the necessary compromises. 2014 contracts, together with shorter-term contracts, will continue to mirror a weaker API#2 coal market and even more bloated supply/demand balances.

*Eastern Grid/ERCOT Market Forecast: Gas Rally Fades As Cooling Loads Disappoint

Spot on-peak power prices saw moderate gains in most markets in May with the exceptions of the MN hub and Florida. Price increases were driven by rising cooling loads with temperatures in some load centers making their first forays above 90º F late in the month. PIRA estimates that loads in the East fell from the prior year, and generation declined year-on-year. Weather in the Southeast, South Central and Great Plains regions was cooler than normal and significantly cooler than the prior year, leading to reductions in demand.

*Supply-Side Adjustments Needed to Thwart Declining Coal Prices

Coal prices dropped substantially last week, with API#2 (Northwest Europe), API#4 (South Africa) and FOB Newcastle (Australia) prices falling sharply over virtually the entire forward curve. API#2 and API#4 are pricing well below the psychological $80/mt barrier, and contango between 3Q13 and 4Q13 contracts on the API#2 forward curve has widened considerably, indicating vast weakness in the prompt months. The market continues to be awash with coal, and supply-side adjustments to the weakness in pricing have been scant.

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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