IRA Energy Group's Weekly Recap for The Week Ending 6/2/13

PIRA Energy Group's Weekly Natural Gas, Power and Coal Market Recap for The Week Ending 6/2/13

NYC-based PIRA Energy Group reports that Korea’s nuclear problem halted the spot LNG price decrease. In the U.S., updated fundamentals remained constructive to gas price recovery. In Europe, the risk to gas price is now greater because the market was unable to put much of a dent in the storage deficit in May. Specifically, PIRA’s analysis of natural gas market fundamentals has revealed the following:

Korea’s Nuclear Problem Halts Spot LNG Price Decrease

Adding to an already booming gas demand surge in Korea this year, another two large-scale nuclear power plants have recently been taken offline for up to four months due to a continuing maintenance falsification scandal. PIRA sees the scandal driving up spot cargo demand in Asia. The nuclear problems, which actually emerged last October, will also delay the restart of two other nuclear power units.

Updated Fundamentals Remain Constructive to Gas Price Recovery

Regardless of the risks surrounding CDDs this summer, and the tough year-on-year comparisons that also lay ahead, especially in July, PIRA’s updated fundamentals support gas prices near current levels, barring fresh bullish developments. While additional gains from the Marcellus and Utica should keep prices in the Mid-Atlantic in check, and the start-up of Deep Panuke will dampen New England basis, PIRA sees other issues curbing the influence of surplus volumes in the Northeast impacting regional prices elsewhere.

Less Storage Requires More Supply

Over the last month, Norway has sharply increased the amount of gas production that will be affected by maintenance over the next 30 days. June shut-ins are now equal to August shut-ins. While estimates by pipeline operator Gassco are certainly fungible, the risk to price is now greater because the market was unable to put much of a dent in the storage deficit in May. Incremental supply has emerged from Russia and the Netherlands, but not in the type of volume necessary to prepare for next winter.

NYC-based PIRA Energy Group believes that longer-term European power contracts should factor in higher risks of a policy overhaul. In the U.S., electricity spot on-peak prices were mixed in May with California hubs easing while Northwest and inland markets edged higher.  The seaborne coal market is grappling with the possible impacts of China’s proposed ban on imports of low heat content coal. Specifically, PIRA’s analysis of electricity and coal market fundamentals has revealed the following: 

Policy Changes to Drive Long-term Power Prices

The markets are unequivocally bearish from a fundamental standpoint. However, there is an increasing consensus in the market place that a policy overhaul is a necessity, in order to bring a much-needed orderly alignment of supply with demand. This alignment will be primarily driven by the necessity to rein in skyrocketing end-user bills, tied to higher costs for the renewable expansion and back-up services. PIRA believes longer-term power contracts should factor in higher risks of a policy overhaul.

Spreads Narrow as SP15 Maintenance Winds Down

Spot on-peak prices were mixed in May with California hubs easing while Northwest and inland markets edged higher. SP15 prices fell as the surge of outages that had supported the market during the past two months began to abate. May weather was warmer than normal over most of the West with the largest temperature departures from normal in Northern California and the inland Northwest. PIRA estimates that loads increased by 0.6% from the prior year.

Coal Market Focused on Chinese Low-quality Coal Import Ban

The seaborne coal market is grappling with the possible impacts of China’s proposed ban on imports of low heat content coal. PIRA believes that the policy is designed to support domestic miners and employment, and loss of lower quality Indonesian supply would not result in higher imports of Australian or South African coal. If enacted, the ban would severely impact Indonesian low-quality coal production, but PIRA believes that the effect on the higher-quality seaborne market will be negligible, keeping fundamentals weak. 

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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