NYC-based PIRA Energy Group report shows that nuclear restarts in Japan are being pushed back. In the U.S., low storage build points to strengthening electric generation. In Europe, Ukraine fears mask broadly weak European fundamentals.
In Japan, nuclear restarts have again been pushed out, this time to 2015, revealing that nuclear capacity will really be taking its time in returning. Several factors are also in play: Japan’s heavy commitment (financial as well as in terms of offtake agreements) to the Cameron project in the U.S. shows that the need for LNG supply to be flexible is an important component of the country’s future import strategy, and the new inclusion of solar as an alternative for both utility scale and local use is offering alternatives to nuclear power.
Last week’s underweight EIA storage update covering the first full week of August provided the first complete glimpse of U.S. electricity generation’s (EG) elasticity to sub-$4 Henry Hub (HH) prices. The reported 78 BCF injection was on the low end of market estimates and fell short of the consensus by 4-6 BCF. This marks the third bullish storage surprise in the past four weeks following a three-month stretch of mostly bearish updates dating back to mid-April.
PIRA estimates that the risk premium built into the forward curve over the latest week of chess moves by Russia and Ukraine is probably 5-7p/th at this point. While it is impossible to completely quantify such a risk premium, the recent rise comes amid an absolute dearth of gas demand in Europe at this time of the year. As PIRA has said over the past two weeks, no one wants to be short in a market where long lines of unidentified Russian trucks are piling up on the Ukraine border and the Ukrainian government is making counter-threats to cut off Russian gas in transit.
Press Release, August 21, 2014