PIRA Energy: Japanese LNG Power Generation Demand to Decrease

NYC-based PIRA Energy Group believes that Japanese LNG demand for power generation is set to decrease in 2H13. In the U.S., tremendous growth from the Marcellus has been redefining traditional sources of supply in the northeast. In Northwest Europe, the bull run of the past few months is coming to an end.

PIRA’s analysis of natural gas market fundamentals has revealed the following:

As bullish as the market looks now, Japan’s LNG demand for power generation is set to decrease in 2H13, but not all that much. The largest buyers of LNG in the power sector, Tepco and Chubu, are not forecast by PIRA to have any nuclear units restarting in 2013. Notwithstanding the recent election, which skews in favor of a return to more nuclear power in the long term, the outlook for additional restarts this year (2013) is looking gloomier due to the extensive nature of construction required for compliance.

Tremendous Marcellus Growth Redefines Sources of Supply

Tremendous growth from the Marcellus in the past three years has been redefining traditional sources of supply in the U.S. Northeast and Canada. Such growth in flows has allowed Marcellus supplies to rapidly displace Western Canadian Sedimentary Basin supplies, which have historically served the U.S. Northeast and, more recently, the eastern Canadian provinces of Ontario and Quebec.

Northwest Europe Bull Run to End Soon

The bull run of the past few months is coming to an end in Northwest Europe, and prices will begin to retreat from recent highs. The downside for day-ahead prices is not as severe as some of the demand-side numbers suggest. However, the market is structurally vulnerable to the issues that have plagued it prior to the deep freeze of December and January, namely the inability to compete on a fuel level basis or versus other gas-intensive industry elsewhere in the world.

Updated Balances Shift LNG towards Asia and South America

PIRA’s updated global supply-demand LNG balances shifts more LNG towards Asia and South America and takes volumes away from Europe for 2013. The shifts are largely based on demand and price expectations in those regions, which will make it attractive to either divert or reload cargos away from Europe and toward higher netback targets for most LNG producers.

NYC-based PIRA Energy Group reports that large fuel pricing complex movements have led to a fall in German forward power prices. Seaborne coal market prices increased slightly last week. Specifically, PIRA’s analysis of electricity and coal market fundamentals has revealed the following:

Large Fuel Pricing Complex Movements Lead German Forward Power Prices to Fall

Large movements in the fuel pricing complex have led to a dramatic fall in German forward power prices. As a result, German power prices for delivery 2014 and 2015 are trading at levels fairly close to their fundamental floor, given current fuel prices. Under a scenario where EUA prices fall further, lower power prices would lead to lower nuclear output, both in Germany and France. The increased competitiveness of coal and lignite units, tied to collapsing EUA prices, may also set the stage for more significant policy changes.

[mappress]
LNG World News Staff, January 30, 2013