New York, NY (PRWEB) May 05, 2015

NYC-based PIRA Energy Group reports that China’s first quarter results are in and what the data show are none too optimistic for the balance of the year – at least for the LNG trade. In the U.S., bullish surprise, but bearish crosscurrents persist. In Europe, the normal rules and assumptions will not apply to this injection season because of the sizable decrease in oil-indexed prices in the coming months. Specifically, PIRA’s analysis of natural gas market fundamentals has revealed the following:

Global LNG Fundamentals Scorecard

China’s first quarter results are in and what the data show are none too optimistic for the balance of the year – at least for the LNG trade.

Bullish Surprise, but Bearish Crosscurrents Persist

Despite Thursday’s bullish surprise, a number of crosscurrents remain at play that were obscured in today’s report as heating loads appear heavily responsible for the large week-on-week narrowing of stock builds. Thursday’s rally into the $ 2.70s, especially if sustained through next week, could undermine already underperforming gas-fired EG.

European Gas Monthly Forecast

The normal rules and assumptions will not apply to this injection season because of the sizable decrease in oil-indexed prices in the coming months, which are causing all kinds of unique optimization plays. After a strong rate of injection in the last week of the month, final numbers will show a slight build inventory of 2.4-bcm, but by and large, the kickoff of storage injection season has been somewhat delayed.

Armenian Gas Consumers to Benefit from Eurasian Economic Union Ascension

The price for the natural gas Russia’s Gazprom exports to Armenia will be reduced Alexey Miller, head of the Gazprom OJSC’s board, said Tuesday in an interview with Russia 24 TV Channel. He said Russia, taking into account Armenia’s accession to the Eurasian Economic Union, will lower the price.

NYC-based PIRA Energy Group believes that French prices supported as a result of coal retirements. In the U.S., supply disruptions lend near-term support to coal pricing in April. Specifically, PIRA’s analysis of electricity and coal market fundamentals has revealed the following:

French Prices Supported As a Result of Coal Retirements

The strength in French prices during April has been well beyond expectations, with some of the drivers still there to stay, primarily the fact that French nominal coal capacity has now been revised down to only 2.9 GWs from a reported official nominal capacity of 5.1 GWs at the end of 2014. What’s also interesting is that French prices remained strong in spite of large gains in imports from Germany and Switzerland (+2.2 GWs year-on-year). Our reading of the recent data and dynamics is that the French market will remain structurally more aligned to gas – certainly more at on-peak hours and in a higher number of hours than in the past.

Supply Disruptions Lend Near-Term Support to Coal Pricing in April

In the Pacific Basin, the weather-related disruption to Australian coal supply boosted physical FOB Newcastle (Australia) prices in April, but the impact on forward prices has been muted. This indicates that the market believes the lost supply will not meaningfully tighten balances. The freefall of Chinese import demand has shown no sign of abating yet, which will limit any sustainable upside for FOB Newcastle prices. In the Atlantic Basin, the supply disruptions in Colombia and Russia have been largely shrugged off by the market, with physical and forward CIF ARA (Northwest Europe) and FOB Richards Bay (South Africa) prices rising only a couple of dollars from end-March. Our weaker outlook for dry bulk freight rates has caused us to trim our CIF ARA outlook somewhat.

Western Grid Market Forecast

On-peak power prices at Western hubs (based on DA LMPs for CAISO markets and bilateral trading elsewhere) were mixed in April, with Mid-Columbia and NP15 moving up while SP15 and Palo Verde weakened. These power price moves occurred against the backdrop of further weakness in gas prices; with the SoCal border price averaging below $ 2.50/MMBtu for the first time since spring 2012. As a result, implied heat rates were up m/m in all markets. Rising heat rates at Mid-Columbia accompanied a sharp drop in Northwest hydro generation (down 4 aGW). April-September runoff projections have been slashed to 76% of normal and NWPP US hydro output during the May-Sep period has been revised down by 600 aMW from last month. California runoff and hydro generation projections have also been reduced.

Environmental Markets – North American GHG Quarterly Update

New U.S. GHG Inventory data, shedding light on emissions trends, were released after submission of an aggressive 2025 emissions reduction target (echoing targets agreed with China in November) to the UNFCCC in advance of end year global climate negotiations in Paris. With limited time left, the Obama Administration continues emissions reductions policy initiatives (with methane, government agency emissions, NEPA, agriculture). The Clean Power Plan is facing legal challenges even before its expected finalization this summer. Canada has yet to submit its new reduction targets, with the Copenhagen targets out of reach absent major policy changes. Provincial elections in Alberta next month and federal elections this fall could bring to power the NDP and Liberals – who support carbon pricing.

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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