PIRA Energy Group's Weekly Natural Gas, Power and Coal Market Recap for the Week Ending November 17th, 2013

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The Competition Is On In Korea and China For Incremental Winter LNG Cargos, while Cold Snap to Undermine French Net Exports

PIRA Energy Group

PIRA Energy Group

In the key Asian growth markets of Korea and China, the competition is on for incremental winter LNG cargos.

NYC-based PIRA Energy Group believes that the competition is on in Korea and China for incremental winter LNG cargos. In the U.S., producer survey reveals results broadly in line with recent surveys. Supply red flags keep Europe guessing. Specifically, PIRA’s analysis of natural gas market fundamentals has revealed the following:

China and Korea Gear Up for Winter

In the key Asian growth markets of Korea and China, the competition is on for incremental winter LNG cargos, with the former showing growth related to fuel substitution (lower nuclear capacity) and seasonal use, while the latter will come from new import infrastructure opening up new markets. Demand indicators from October show no decrease in the pace of incremental buying by Korea, even without the colder than normal weather factor. The activation of these two ports will increase Chinese import capacity by some 10-mmcm/d and aside from weather in Northern China (a similar seasonal demand profile to Korea), two entirely new markets will be opened without the corresponding addition of dedicated new supplies which can only mean more buyers for the same level of volumes.

Producer Survey Reveals Results Broadly In Line With Recent Surveys

The more things change, the more they seem to stay the same. PIRA’s 3Q13 Producer Survey reveals results broadly in line with recent surveys. Namely, a subset of companies active in the nation’s most prolific shale play — the Marcellus — remain responsible for pushing U.S. production to record highs, while most others tread water.

Supply Red Flags Keep Europe Guessing

After record gas injections in October 2013, PIRA had been somewhat less concerned about a supply squeeze this winter, but the early hoisting of several new red flags on supply has us concerned. Russia showed back in October that its production capacity was in good shape going into winter; what it cannot guarantee is that domestic demand will cooperate (by being low) or that we are not headed into another Ukrainian transit fiasco. While Russian gas production has dipped below normal in November, at around 1.85-bcm/d, Gazprom officials are deeply concerned about access to Russian gas for Western Europe via Ukraine.

NYC-based PIRA Energy Group believes German cold snap to undermine French net exports. In the U.S., East and ERCOT spot on-peak power prices lower in October. Specifically, PIRA’s analysis of electricity and coal market fundamentals has revealed the following:

Cold Snap to Undermine French Net Exports

Temperatures well below normal levels will trigger large extra weather-related demand across North Western Europe during week 47, with the largest anomalies expected in France, Benelux and the U.K. Unlike prior winters, the U.K. market is considerably tighter this year, underpinning U.K. imports from France and the Netherlands. French net exports are likely to shrink, especially since French spare gas-fired capacity is priced at levels very close to Italian and Dutch units. France is already in a net importing position from Spain, but imports are set to increase.

East and ERCOT Spot On-Peak Power Prices Lower in October

East and ERCOT spot on-peak power prices were mostly lower in October compared with the prior month. The largest declines occurred in the Northeast and PJM markets which fell by about 10%. However, prices in western NY and TVA held steady. Off-peak prices were mixed with respect to September with a significant drop at the MN hub, moderate reductions in the Northeast and increases at PJM-W, the IN hub, Ontario, TVA and Entergy. Rising heating loads, baseload maintenance outages, and slightly higher gas prices contributed to the price increases in those markets

Rising Chinese Electricity Demand Lending Support to Pacific Basin Coal Pricing

Despite a sag early in the week, seaborne coal pricing generally finished the week flat or slightly above last week. In the run up to peak demand in both Europe and Asia, there is limited downside for prompt pricing. Underpinned by positive economic developments, Chinese electricity demand expanded by more than 10% year-on-year in October, which led to strong growth in thermal generation. However, PIRA believes that pricing will turn bearish again in early 2014 as the oversupply will not yet be absorbed.

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.

PIRA Energy Group
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New York, NY 10016

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