New Nuclear power capacity in Korea, Japan to affect LNG balances: PIRA Energy

PIRA Energy Group reports that 2015 will witness the biggest change on the demand for LNG balances stems from the evolving nuclear power generation situation in Korea and Japan.

NYC-based PIRA Energy Group reports that the biggest change on the demand side in the upcoming year for LNG balances stems from the evolving nuclear power generation situation in Korea and Japan. The latest EIA update on U.S. storage indicated inventories declined, but the market’s attention appears fixated on the fallout stemming from the latest polar vortex and potential for below-normal temperatures into February. In Europe, Spanish gas demand is on a downward slope.

Specifically, PIRA’s analysis of natural gas market fundamentals has revealed the following:
Evolving nuclear power generation situation in Korea and Japan
The biggest change on the demand side in the upcoming year for LNG balances stems from the evolving nuclear power generation situation in Korea and Japan. Demand losses will occur in Korea, while in Japan, PIRA has pushed Japanese nuclear restarts to late 4Q from January, with no significant capacity coming on until late 2015. Thereafter, a significant surge in year-on-year LNG production will begin in late 2015 with the emergence of the first U.S. LNG exports, followed by more volumes from Australia. PIRA is building in new supply from six new LNG trains in 2015 with a capacity to produce 72-mmcm/d of LNG supply. If the plants come online as planned, it would be the single largest year-on-year increase (145-mmcm/d year-on-year) in capacity since 2010.

Fallout stemming from latest Polar Vortex
The latest EIA update on U.S. storage indicated inventories declined by 107 BCF -- a 180 BCF week-on-week decline. But the market’s attention appears fixated on the fallout stemming from the latest polar vortex and potential for below-normal temperatures into February. Our latest outlook already shows a U.S. storage carryout of less than 1.3 TCF assuming normal GWHDDs during February and March. Given the threat of additional cold weather, NYMEX gas futures are likely to see continued support until more concrete signs of a sustained weather reprieve are seen.

Spanish Gas demand is on a downward slope
Underlying Spanish gas demand is on a downward slope again. While it may not mean a lot for NBP, it is significant for LNG trade in and around Europe. Up until now, the one country that needed to consume LNG in Europe was Spain because it did not have enough pipeline import capacity to rely solely on pipeline gas. What's interesting is that in January and February of 2014 scheduled flows on the Duran and Medgaz pipelines are higher than what is widely considered each pipeline's capacity. Based on these scheduled flows, we must then assume that pipeline import capacity is closer to 66-mmcm/d rather than 62-mmcm/d.

NYC-based PIRA Energy Group reports EC report on energy prices and costs reveals interesting dynamics for end-users. In the U.S., continued shocks of polar cold have jolted natural gas prices and drawn coal stocks to their lowest level since prior to the recession. Specifically, PIRA’s analysis of electricity and coal market fundamentals has revealed the following:

EC report on energy prices and costs reveals interesting dynamics for End-Users
During a week featuring several policy documents and announcements, the EC report on Energy prices and costs provided insights into the end-user price and demand developments. The report highlights huge ranges in end-user electricity prices not only across member states, but also within each market and sector. Additionally, the report hints at steep elasticity of industrial demand to prices, signaling significant demand destruction is occurring.

U.S. Coal stockpile estimates
Continued shocks of polar cold have jolted natural gas prices and drawn coal stocks to their lowest level since prior to the recession. PIRA estimates that total U.S. electric power sector (EPS) coal inventories will approach 134 MMst by month end. This reflects 58 days of forward demand (versus 77 days one year ago).

Chinese prepayment could help reduce Russian fas import price
Gazprom may reduce the price of gas sold to China in exchange for an advance payment of several billion dollars. China persistently demands lower prices. However, the idea of a prepayment seems to be perceived more positively. China repeatedly tested this scheme with Rosneft and it proved to be very effective

Natural Gas, Crude Oil reign supreme, Gold, Silver weakens on Fed tapering

Unusually cold weather has caused huge drawdowns on gas storage. Gas stockpiles were seen at 2.423 trillion cubic feet as of January 17, 13.2% below the five year averae and 19.8% less than year-ago supplies

Extreme cold weather in USA pushed US natural gas futures to a whopping 27% increase in prices in January to $5.325 per MMBTU while at India's Multi Commodity Exchange, natural gas for February delivery rose from a low of Rs 245.70 per MMBTU to Rs 328.10 per MMBTU.

Unusually cold weather has caused huge drawdowns on gas storage. Gas stockpiles were seen at 2.423 trillion cubic feet as of January 17, 13.2% below the five year averae and 19.8% less than year-ago supplies, according to Energy Information Administration data.

US Gold futures for February delivery is down to $1255 an ounce. as announcement of further tapering measures by US Federal Reserve weakened the demand for safe haven assets. US Silver for March delivery has dropeed to $19.385 per ounce.

At MCX, Gold for February delivery is down 0.39% to Rs 29621 per 10 grams with weakness in Rupee provding some support.

Metals has been knocked down for the near term on US Fed tapering news and China's manufacturing data. US Copper fell to a seven week low on Thursday at Comex division of New York Mercantile Exchange. copper futures for March delivery fell to a session low of USD3.231 a pound, the weakest since December 9, before trimming losses to trade at USD3.235 during European morning hours, down 0.15%.

Copper for February delivery at MCX fell 0.54% to Rs 450.50 per kg. 

US Nat Gas price should move to $15 or above to balance market

US Natural Gas prices will have to spike propane parity rates of $15/MMBtu to encourage petroleum fuel burn this winter or to destroy industrial demand till cold weather persists.

The only way to balance a tightening natural gas market immediately is to force demand rationing through higher prices. The natural gas prices should move up to propane parity prices, which is at $15/MMBtu, according to a report by Bank of America-Merrill Lynch (BofAML).

Prices may need to move up to encourage petroleum fuel burn this winter or to destroy industrial demand till cold weather persists. While natgas stocks across the country are not yet critically low, oil parity levels would translate into NYMEX Henry Hub prices of $15+/MMBtu. US natural gas spikes also will temporarily attract LNG from abroad.

Prices of natural gas in North America have been impacted in recent days by exceptionally cold weather. The sharp price move could boost supply in the next few months, the response is unlikely to come in time to temper winter prices, especially in light of continued production freeze-offs. America is highly unlikely to run out of nat gas, as the winter season would be over in the couple of months there would be growth in the production of natural gas.

Frigid weather conditions across the country have driven up heating demand, resulting in a spike in weather-sensitive residential and commercial consumption. . On top of that, gas-fired power generation remains strong, both on an absolute as well as on a weather-adjusted basis, further tightening the market. On the supply side, production freeze-offs are currently running above 1 bcf/d, with the majority in the Marcellus and Utica regions. Combined, the unusually cold
weather has created a run on inventories and a wide storage deficit.

In the view of Bank of America Merrill Lynch, long positions on the March NYMEX nat gas contract seem attractive from a risk-reward perspective for investors. Options markets are also already starting to reflect this sharp upside risk but low deltas still offer a good risk reward.

With prompt natural gas prices spiking due to cold weather conditions and producers selling aggressively on a forward basis, the NYMEX natural gas market has moved into backwardation and near-dated prices are now trading above natural gas prices in 2020. This has widened the backwardation in winter contracts to extreme levels compared to the last few years.

RBI 's existing policy rates

RBI has the unenviable task of managing inflation and at the same time ensuring that credit flow to industry is not hampered due to its tight monetary policy in view of the slow down in manufacturing and GDP growth in..

The Reserve Bank of India (RBI) in  a short while from now will announce the third quarter review of its monetary policy 2013-14 and markets have been speculative in the past few days as the Central Bank is feared to raise key rates in view of the inflationary trends prevaling the economy.

Here are the existing policy rates:
Bank Rate: 8.75%, Repo Rate: 7.75%, Reverse Repo Rate 6.75% and Marginal Standing Facility 8.75.

RBI has the unenviable task of managing inflation and at the same time ensuring that credit flow to industry is not hampered due to its tight monetary policy in view of the slow down in manufacturing and GDP growth in general. Indian economy will be blessed with abundant food grains this year following good monsoons and higher acreage seen in rabi crop.

The interest rate hike cycle has certainly peaked while the Reserve Bank of India (RBI) may still be feeling constrained to go in for an easy monetary policy tomorrow, an ASSOCHAM (Associated Chamber of Commerce and Industry) assessment paper has noted.

It said while the business and industry want the central bank to go in for bold measures and announce major cuts in the policy rates, the expectations may not be met by the RBI, adds the ASSOCHAM paper.

“There is a pressure building again on the Indian Rupee as emerging markets’ currencies weaken against the USD. For us in India, the currency depreciation could mean more of imported inflation. This development along with further tapering plans of the US Federal Reserve in its bond buying stimulus programme is sure to weigh on the Governor Dr Raghuram Rajan,” said Mr Rana Kapoor President ASSOCHAM.

In so far as the pure play of interest rates is concerned, there are a number of sectors like consumer durables, automobiles, real estate and MSMEs which would like RBI to at least drop the policy rate moderately, points out the ASSOCHAM paper.

The Federation of Indian Chambers of Commerce and Industry (FICCI) economic outlook survey has forecasted 4.8% GDP growth for the Indian economy this year, marginally below the earlier estimate of 5%.