Natural Gas, Power & Coal Market: PIRA's Weekly Recap

NYC-based PIRA Energy Group believes that drought-stricken Brazil will continue high LNG imports. In the U.S., there was another above-expectations build, with larger injections to come. In Europe, Ukraine data implies another storage boost in 3Q. Specifically, PIRA’s analysis of natural gas market fundamentals has revealed the following:

Drought-Stricken Brazil Will Continue High LNG Imports
As it heads into its traditionally weaker season for gas demand, Brazil will nevertheless be testing the limits of how much LNG it can import. Hydro storage levels in Brazil are well below the 10-year range and more gas is going to be needed in order to keep the lights on, the people cool, and the factories operating.

Another Above-Expectations Build, With Larger Injections to Come
For the second consecutive week, the EIA’s reported build was 5-7 BCF above the market’s expectations and even exceeded the high end of a relatively wide range of estimates. Again, the Producing Region proved the most dynamic, doubling its injections week-on-week to 20 BCF.

Ukraine Data Implies Another Storage Boost in 3Q
If new official Ukrainian data is to be trusted, PIRA now estimates that storage levels in the country began the month of Sept. at 19-bcm. This level is based on actual data through July and an assumption that August injections (2.5-bcm) were less than July injections (3.6-bcm). At 19-bcm, PIRA data shows that Ukrainian gas imports can be covered by storage through the first week of February assuming normal weather and Oct. 1 as the beginning of withdrawal season. Assuming colder than normal weather for the entire stretch, storage would be compromised by the first week of January.

NYC-based PIRA Energy Group believes that downside for Italian power prices now limited. Bullish coal pricing risks scant in lead up to Northern Hemisphere winter heating season. Specifically, PIRA’s analysis of electricity and coal market fundamentals has revealed the following:

Downside for Italian Power Prices Now Limited
With significant fundamental and regulatory changes taking place, Italian power prices finally appear to be stabilizing, with short-term downside now limited, in PIRA’s view. In spite of weak underlying demand, renewable capacity additions have clearly slowed down, while there is significant uncertainty over the status of large portions of the existing fossil fuel units. With gas units that are burning spot gas now in a marginal position, Italian power prices are less disconnected from their French counterparties, but structural differences persist.

Bullish Coal Pricing Risks Scant in Lead Up to Northern Hemisphere Winter Heating Season
The coal market declined again last week, as the market continued to grapple with the implications of China’s forthcoming pollution initiatives. While API#2 (Northwest Europe) prices ticked up slightly on the front of the curve, API#4 (South Africa) and FOB Newcastle (Australia) prices declined throughout their forward curves. While the approaching Northern Hemisphere heating season may boost buying activity, easing tensions in Ukraine and weaker Chinese demand have taken away much of the constructive risks to coal pricing.

Source:  PIRA Energy Group