Investor & Financials

PIRA Energy Market Recap for the Week Ending July 17, 2017

15PIRALogo copyRefining Challenges Remain the Focus of Latin American Product Markets

Refining challenges remain the focus of Latin American product markets. Refinery crude runs in the region are expected to be 120 MB/D lower YoY in 3Q17. In Mexico, we project 3Q17 runs to fall 50 MB/D YoY, affected by outages in Salina Cruz and Cadereyta. In Brazil 3Q and 4Q17 refinery runs are set to move higher YoY. Regional gasoline demand is expected to remain soft in 2H17 while distillate demand recovers by 4Q17, driven by Brazilian consumption. Operational issues keep limiting local supply of products.

Fundamentals Warrant a Move to the Upper end of the Range

NYMEX futures continue to be whipsawed — whereby the market has materially vacillated on evolving expectations of supply/demand tightness — with swings in weather expectations heavily influencing sentiment. In addition to weather, the observable “saw-tooth” trading pattern, i.e. traversing up and down the established range, has been driven by volatile weekly EIA storage readings — as conflicting data has done little to highlight any underlying weather-adjusted trends. Altogether, with the contraction of available hydro and wind generation, gas gaining marketshare over coal in EG and the prospects of warmer weather, fundamentals point to tightening balances. Price strength will need to force some demand destruction to reach satisfactory inventory levels heading into winter.

The Curious Case of Mexican LNG Demand

Do not sleep on Mexican LNG demand just yet. PIRA’s somewhat dim view of LNG growth prospects for Mexico remain in place, as the significant expansion of U.S./Mexico pipeline capacity is underway. However, the ability to move the U.S. pipeline gas to places where LNG demand exists is not quite there and will still be a key component of gas balances during periods of maintenance in the years ahead.

Is Transmission Congestion Catching Up to Wind Buildout? Basis Risk for ERCOT and SPP Wind Farms

Transmission congestion in ERCOT and SPP, the two regions in the U.S. that have seen the greatest growth in wind generation in recent years, is resulting in steeper discounts from hub prices to the prices paid to wind generators. These discounts have been growing as installed wind capacity has increased, particularly in the ERCOT Panhandle region and the western part of SPP, impacting merchant wind farm economics, and requiring transmission upgrades to resolve. While some transmission projects are already underway, additional transmission will likely be needed to integrate the expected levels of wind in these regions.

U.S. Stock Deficit to Last Year to Continue Widening

Overall stocks drew 3.9 million barrels this past week led by a strong crude stock draw of 7.6 million barrels, 1.9 million barrels of which was in Cushing. Four week average adjusted product demand increased to 4.1%, or 780 MB/D year on year. Gasoline led the light products with stocks declining 1.6 million barrels while distillate inventories had one of their larger builds of 3.1 million barrels. For next week’s EIA data, crude stocks are forecast to decline sharply by 6.0 million barrels.

Second Quarter Global Activity Data Point to Improvements

In the U.S., retail sales for June disappointed, but consumer spending is still rebounding. Industrial production was solid, as industries in the capital-intensive sector recorded encouraging gains. The latest core inflation data remained sluggish. In the euro area, activity indicators improved in line with a pick-up in economic confidence, and second quarter GDP growth is likely to come in faster than the first quarter’s pace. China, South Korea, and Taiwan all reported a strengthening in exports, and this development bodes well for the global economic outlook.

U.S. Ethanol Prices Advance

Manufacturing margins worsened the week ending June 7 as corn costs soared. RIN prices were steady. Brazilian ethanol prices were lower while European values rose.

Record Short Covering

132.7K corn contracts. That’s the net number bought by Non-Commercials in the week immediately preceding the July WASDE. The previous week’s net of -80K turned into a net long of 50K contracts during a ~20 cent rally that peaked on reporting day (Tuesday, July 11th) in what is being called the largest short covering, volume wise, in just over two years. The immediate reaction Friday afternoon, and Sunday night in the market, was astonishment, and for bulls a fear that the dreaded Funds might actually be long at this point. Given the market reaction after the WASDE, and volume that has traded hands since then, those fears are without merit in PIRA’s opinion.

Is Gas Storage a Wind/Solar Derivative?

The intermittency of wind and solar production is developing into the balancing issue that PIRA has been promising for a long time now. It is leading to ever more volatile within-day pricing that is creating new opportunities for storage. This growing link between renewables and storage represent emerging opportunities to a storage market that has been dogged by complaints of lack of opportunity and a dearth of spreads.

Italian Prices: No Major Surprises so Far, but Signs of Underlying Strength

After a major upward move in June, PUN day ahead prices in Italy have settled slightly below expectations in July, or about €50/MWh. However, with temperatures closer to July 2016 and only 0.7 degree Celsius above normal, spark spreads have been quite robust this month, in line with a broadly bullish underlying fundamental picture.

CA Carbon up Sharply; Awaiting Cap and Trade Vote

Pricing momentum fed off the CA Supreme Court’s declining to review the legality of auctions and the emergence of market-friendly legislative proposals. The benchmark CCA contract moved above $15 in July (well above the expected 2018 auction reserve price). A stronger August auction will clear the way for unsold allowances to be re-offered starting in November. PIRA believes that a return to bank-building in the near term will limit the further upside potential for allowance pricing, even with some increased appetite to hold surplus and take on speculative length. It is still unclear whether the cap and trade extension will pass (by 2/3rd) this year/what form it will take. CARB will need to re-propose Cap and Trade Amendments if they are not adopted by the August deadline. ON linking prospects are also tentative, with elections less than a year away.

Seaborne Coal Prices Diverge, Downside Risks Looming

Coal market prices diverged this week, with CIF ARA and FOB Richards Bay prices falling W/W, while FOB Newcastle prices moved higher. The strength in FOB Newcastle prices likely stemmed from demand strength in Asia, led by China, where hot temperatures and the temporary curtailment of hydro generating capacity bolstered coal-fired generation. However, the announcement that China’s imports declined Y/Y in June illustrates that the downside risks for FOB Newcastle and the global market are becoming more prominent.

Japan Higher Runs and Higher Demand

Japanese runs rose 106 MB/D on the week, as turnarounds continue to lessen. Crude imports eased only slightly to 3.72 MMB/D, and crude stocks built again, by 5.6 million barrels. Again, finished product stocks fell modestly. Aggregate demand rebounded a strong 110 MB/D and the 4-week average trend in demand continued to move seasonally higher. Refining margins were again higher on the week and have continued to improve. Gains this week came from firmer gasoline and middle distillate cracks.

Credit Conditions Improve, Financial Stresses Remain Very Low

A very bullish week, with a big reversal in the emerging market / high yield retrenchment that had been seen the previous week. Financial stresses remain exceedingly low, though the St. Louis financial stress indicator again moved slightly higher. Commodities had a positive week, with energy being particularly strong. The dollar generally moved lower. The reflationary trade appears to have reemerged, at least this past week. The U.S. equity market hit new record highs.

The U.S. Ethanol Market Tightened as Stocks and Production Declined

U.S. ethanol inventories declined for the fourth consecutive week the week ending June 7, falling by 390 thousand barrels to a six-month low 21.2 million barrels. While total domestic output fell 7 MB/D to 1,007 MB/D, production outside of the Midwest rose 5 MB/D to a record 94 MB/D. Ethanol-blended gasoline production sunk 164 MB/D to 9,223 MB/D despite greater gasoline output.

Bean Buying Starts to Impress

An announcement Friday morning that China had purchased 1.3M MT of soybeans for the coming Marketing Year needs some context. While it is the 7th largest daily purchase in history, it’s also important to know that 2017/18 sales have been woefully slow up to this point at less than 4M MT as of yesterday. This lack of buying has less to do with price and more to do with both little concern about the size of the U.S. crop as well abundant supplies produced this year in South America.

Prices Retreat With Lack of Summer Heat

Spot on-peak energy prices were higher y/y (but lower m/m) in most East and ERCOT markets with a few notable exceptions. Loads in the East fell by 3.7% as cooling loads fell from the warmer than normal prior year. ERCOT loads were flat. Henry Hub spot prices averaged near $2.90/MMBtu in June, down ~7% from May levels. Northeast markets saw even sharper declines. In recent trading, the prompt futures contract has rebounded above $3. PIRA has revised down summer energy prices, partly in response to a lower gas price outlook but also due to lower unplanned outage rates with less reliable older coal units having been replaced by CCGTs with lower forced outage rates.

Recent EUA Price Gains Mask Long-Term Bearish Risks

PIRA expects European Carbon (EUA) prices to adjust to the downside from their current range of €5.30-5.50 during the balance of July, although lower auction volumes should still result in an EUA price bump in August. While the potential end to post-2020 market reform talks could offer a degree of support for EUAs in 3Q2017, there is also the possibility that market participants could “buy the rumor and sell the fact” of the reform package, and there appear to be few other fundamental drivers of sustained EUA price gains in the balance of 2017.

U.S. to Become Major Global Crude Oil Exporter with Infrastructure Not a Limiting Factor

The U.S. Gulf Coast will play a growing role as an oil exporter to global markets and will become one of the largest exporters in the world. Its infrastructure will be ready to supply increasing volumes to a thirsty global market. PIRA forecasts U.S. crude oil exports will grow to 2.25 MMB/D by 2020, a four-fold increase from 2016. This growth will be driven primarily by rising light sweet crude supplies from shale production. Proposed capital projects are pointing toward Corpus Christi becoming the primary Gulf Coast export hub once they alleviate logistical constraints and provide access to Permian supplies.

Global Equities Post New Record Highs

Many global equity markets hit new record highs this past week, including the S&P 500. In the U.S., the growth indicator posted a strong gain in momentum. Technology, energy, and materials all exhibited strong performances. Banking, however, lagged and declined. Internationally, the tracking indices generally did even better than the U.S. performance with Latin America, China, emerging Asia, emerging markets all posting robust gains.

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.

Westwoood Insight: Will Trump’s Presidency Dampen US Offshore Wind Prospects?

16 1WestwoodGlobalenergylogoIn 2015, the Department of Energy’s Wind Vision Report projected that the US offshore wind industry could support investment to reach a cumulative capacity of 3 GW by 2020, 22 GW by 2030 and 86 GW by 2050. These targets do look wildly unrealistic, but the prospects for growth in offshore wind still look strong even under a Trump presidency.

The US saw its first commercial offshore wind farm installed off Rhode Island at the end of 2016. Although small in size (30 MW at full capacity) Deepwater Wind’s Rhode Island marks a milestone for the US renewables sector. This is the country’s first operational offshore wind farm, which could lay the foundation for several developments off the US coast over the next decade.

Westwood Global Energy Group’s (WGEG’s) World Offshore Wind Market Forecast 2017-2026 paints an encouraging picture for the US offshore wind sector over the next decade. Cumulative capacity is set to grow from 30 MW in 2016 to 2.5 GW by 2026, with an additional 1 GW of capacity from projects which have not yet passed conceptual phases, assuming an offshore wind target of 5GW by 2030.

16 2USA Cumulative Capacity by Current Project Status 2016 2026 768x456USA Cumulative Capacity by Current Project Status, 2016-2026

US offshore wind expenditure is forecast to total $28bn between 2017 and 2026, with a 39% year-on-year growth. Hardware Capex is expected to amount to €19.1bn, accounting for 68% of total spend, followed by installation at €6.2bn (22%) and planning and development at €2.9bn (10%). The US total population of operational turbines is expected to grow from 6 in 2016 to 580 by 2026.

Since Rhode Island, Deepwater Wind has obtained a permission to build the 90 MW Deepwater One wind farm off New York. Statoil will also be exploring the potential to host over 1 GW offshore New York. Other encouraging signs include the first US auction under Trump, which resulted in a winning bid of nearly $9.1m from Avangrid Renewables, for the 1.5 GW Kitty Hawk project lease, and the award of offshore wind renewable credits by the Maryland Public Service Commission in May 2017.

Despite president Trump’s pro-oil and gas stance and his decision to leave the Paris Climate Accord, there are some positive signs that US offshore wind is gaining momentum. More importantly, as each state has its own renewable electricity mandates, the withdrawal from the Paris Climate Accord is likely to affect emission targets at a federal level only. It remains to be seen the extent to which President Trump will be able to influence individual states’ renewable policies.

Marina Ivanova, Analyst, Westwood Energy
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BP 2Q 2017 Exploration Highlights

  • Discoveries in Egypt and Trinidad underpin major existing businesses
  • Actively managing exploration portfolio and exiting non-competitive assets, expects around $750 million non-cash exploration write-off in Angola
  • Exploration success in Senegal confirms new world-class basin
  • 2017 access in Senegal, UK, US, Canada and Mexico

15bp logo copy 2BP says that it continues to make progress in shifting its exploration portfolio toward natural gas and advantaged oil.

As first described to the financial community in 2016, BP is actively reviewing its exploration activities and refocusing them on growth in natural gas and advantaged oil in regions where BP currently operates. It is also selectively looking for opportunities to grow new material production regions while exiting less competitive exploration prospects.

Bernard Looney, BP’s Upstream chief executive commented: “We are making disciplined choices throughout our business, including in exploration, and pursuing only opportunities that will deliver clear value for our shareholders. Equally important to this disciplined, value-over-volume strategy, we are choosing not to pursue activities that we don’t think will deliver maximum value for our shareholders.”

Portfolio review

As part of the ongoing portfolio evaluation, BP has decided to relinquish its 50% interest in Block 24/11 offshore southern Angola. Katambi, a gas discovery made in the block in 2014, has not been determined to be commercial. As a result of this and other exploration write-offs in Angola, BP expects to include in its second quarter 2017 results a non-cash exploration write-off in Angola of around $750 million, which will not attract tax relief. This will not impact cash flow as part of re-balancing BP.

In October 2016 BP announced that it would not continue frontier exploration in the four blocks it operated in the Great Australian Bight, offshore southern Australia. BP and partner Statoil have now signed a swap agreement where Statoil has taken full ownership and operatorship of two of the blocks. BP is proceeding to discuss with the Australian government exiting its blocks. This is not anticipated to impact second quarter 2017 results.

BP continues to thoroughly review its existing portfolio of exploration assets, moving forward with the most attractive and exiting those that do not compete.

Discoveries

BP has announced four gas discoveries so far in 2017.

The Savannah and Macadamia gas discoveries in Trinidad, announced earlier in June, together are expected to unlock around 2 trillion cubic feet of gas in place and to support further development in BP’s long-standing business in Trinidad. The Qattameya discovery in Egypt, announced in March, was the third gas discovery on the North Damietta Offshore concession, where BP is already developing the Atoll field.

Following the completion of its entry into Senegal, in May BP and partner Kosmos Energy announced a major gas discovery with the Yakaar-1 exploration well, which further confirms offshore Mauritania and Senegal as a world class hydrocarbon basin. The partners plan a drill stem test at the Tortue Field and a further three exploration wells over the next 12 months.

Access

BP has also continued to seek and access attractive new exploration acreage and opportunities globally. Building on incumbent positions, BP has been awarded new licenses in the US Gulf of Mexico and in the UK North Sea. The 25 blocks awarded as a result of the UK’s 29th Offshore Licensing Round represent the largest acreage award for BP in the North Sea since the late 1990s.

In support of selectively looking for new material production regions, earlier in 2017 BP was awarded exploration licenses in Newfoundland, off the east coast of Canada, and in Mexico. Further to the deal announced between BP and Kosmos Energy in December 2016, BP deepened its position in Senegal agreeing to purchase a further 30% interest in two offshore blocks.

Howard Leach, BP’s head of exploration commented: “This combination of new discoveries and new access has given BP a strong, resilient and more diversified exploration portfolio that lays the foundation for future growth in some of the world’s most exciting hydrocarbon basins.”

PIRA Energy Market Recap for the Week Ending July 10, 2017

17PIRALogoRig Count to Slow Further as Brent Falls Below $50/Bbl

Crude prices fell again in June, with Dated Brent dropping below $50/Bbl. With weaker prices in recent months, the growth in working rigs in the U.S. has slowed, and will likely slow further and level off in the second half of the year. Western Canadian production is slowly returning to normal following the March Syncrude fire, and U.S. Midcontinent production has now turned positive on a year-on-year basis. Cushing crude stocks declined 4 million barrels in June, and 10 million barrels in the second quarter – part of a 35 million barrel U.S. crude stock draw. Further stock draws are expected in the third quarter, although stocks will likely rebuild in Western Canada. Stocks will also climb in West Texas, in advance of a year-end surge in pipeline capacity, as Permian Basin production increases rapidly.

Inventories Drop the Week Ending June 30

U.S. ethanol inventories declined for the third consecutive week, falling by 267 thousand barrels to 21.6 million barrels, the lowest since January. Domestic ethanol production was relatively flat, dropping 1 MB/D to 1,014 MB/D. Ethanol-blended gasoline production fell to 9,387 MB/D from a record 9,529 MB/D during the preceding week. Brazil shipped 20 MB/D (24.6 million gallons) of ethanol to the U.S. in June. August ethanol futures fell 1.1¢ to $1.505 per gallon today as of 11:48 A.M. CT, following corn prices lower.

EIA Reports Little Growth in April; Subsequent Flows Tell Different Story

Following the long holiday weekend, the prompt NYMEX contract fell to a new seasonal low, ~$2.83/MMBTU, as weather and production gains negatively colored sentiment. With limited heat on the horizon in key regions, the window for sustained weather induced tightness is fast approaching. Moreover, production over the weekend reached YTD highs, fueling concerns over loosening balances. Until recently, supply gains have been slow in the making; the recently published EIA Monthly Crude Oil and Natural Gas Production (914) report — updated through April 2017 — affirmed an anemic pace of sequential supply growth in March and April. However, the lackluster EIA/state production numbers mask the substantially increased drilling activity that has occurred, and that even with fracking/completion delays, producers are in a good position to accelerate volumes in 2H17. Increasing signs of production recovery have already occurred, with flow data indicating substantial gains in Appalachia in recent weeks.

Big Week Ahead

If you’re on a July holiday, warm and dry are words you hope to hear from your meteorologist. Not so much if you’re a farmer waiting for your corn to pollinate west of the Mississippi River. The weather forecasts this week are critical for the market because for those who forecast pollination dates strictly off the NASS emergence data, the first “major” state to get past 50% pollination will be Illinois this Wednesday the 12th, followed by a vast majority of the other “majors” between the 18th and the 22nd.

U.S. Huge Stock Declines as Demand Performs

Commercial oil inventories declined 13.4 million barrels last week, the largest of the year, as reported product demand soared to 22.2 MMB/D, a new record. The largest individual product draw was not surprisingly in gasoline (3.7 million barrels), reflecting the July 4th holiday driving. Crude inventories declined 6.3 million barrels as runs increased and imports decreased. Cushing crude stocks fell 1.3 million barrels. Crude stocks are expected to continue to decline next week. Gasoline demand strength to continue to pull gasoline stocks lower. Middle distillate stocks modestly build next week, as demand eases during the holiday week.

U.S. Job Growth Is Solid; Central Bank Balance Sheet Issues Are Center Stage

The takeaways from the labor data release were straightforward: an underlying pace of U.S. economic growth remains constructive, based on solid job gains; and the tightness in the labor market is yet to generate substantial wage pressure. In the comings months, the Fed and the European Central Bank are expected to announce changes to balance sheet policy. Policy shifts are not necessarily negative developments for the outlook – after all, central banks are considering actions because of an encouraging growth backdrop; furthermore, changes to balance sheets will only occur gradually. But there are uncertainties about when and how the changes will be carried out, and it appears to be affecting the market’s mood.

Ukraine is Tightening Central European Balances – Making Russia Ever More Key

This summer has been characterized by very high pipeline flows from the two big stalwarts of European gas supply – Russia and Norway. Norwegian deliveries are up by 42-mmcm/d or 15.8% versus normal and Russia flows are up by 22% or 67-mmcm/d vs normal. These two pipeline sources far outweigh the 22-mmcm/d increase in LNG imports versus the last 5 years. These high flows are evidence of the continued price competitiveness of contract pricing that has aligned itself quite well with hub pricing. Then again, the high demand needs from storage this summer in some ways assures cost competitiveness on the part of contracts because it becomes an easy arbitrage for supply contract holders – ramp down on contracts and up on hub gas.

Korea Continues Gas Charge with Short and Long Term Implications for LNG

Taking on a telenova-like aspect, Korea is rapidly advancing a series of new measures designed to enhance the role of natural gas in the power generation fuel mix, which to date is dominated by coal and nuclear. In so doing, the trade relationship between Korea, as the world’s second largest importer of LNG, and the U.S., on target to be the world’s third largest exporter of LNG by the end of the decade, is on track to become that much stronger, benefiting both U.S. export prospects as well as LNG trade prospects in general .

French Climate Plan: Very Ambitious Targets, Very Little Details

While lacking key details and leaving many questions unanswered, the “Climate Plan” unveiled by the French energy minister this week nevertheless provides some additional clues to the government’s energy policy, with the French curve extending the gains seen at least since mid-May.

Japan Runs Rising Back Up

Japanese runs rose 136 MB/D on the week, as turnarounds continue to lessen. Crude imports rebounded to 3.77 MMB/D from extremely low levels and crude stocks built 5.6 million barrels from record lows. Finished product stocks fell modestly, with a good draw on naphtha, a lesser draw on fuel oil and gasoline, which were mostly offset by a rise in middle distillates. Aggregate demand fell 99 MB/D, but the 4-week average trend in demand has begun to move seasonally higher. Refining margins were higher on the week and have continued to improve.

Stresses Low, but Debt Pricing Shows Movement

In general, financial stresses remain fairly low. The S&P 500 and volatility (VIX) were little changed, but debt pricing took center stage. There was a noted pickup in yield, with lower pricing, on emerging market debt (EMB) and high yield debt (HYG). The deflationary trade, we had been seeing, appeared to reverse a bit. Commodities had negative week, particularly energy and precious metals.

Short Covering and Strong Demand Cause Coal Pricing Surge

Coal prices moved considerably higher this week, with FOB Richards Bay prices rising by the greatest extent. For 3Q17, FOB Richards Bay prices surged by over $7.00/mt W/W, while CIF ARA and FOB Newcastle prices increased by $5.00/mt and $4.40/mt, respectively. Short covering, the disruption in coal traffic to Richards Bay Coal Terminal, and the loss of hydro generation in China all contributed to the rise in prices this week. These factors built on the prevailing tightness that has been present in the market over the past several months, stemming from supply disruptions in Australia and Indonesia.

EPA Proposes Little Change in Biofuels Requirements for 2018

The EPA issued its proposed renewable fuel standards for 2018 and bio-mass diesel for 2019 on July 5. The Agency proposed requirements similar to this year’s mandates, which are substantially lower than originally set forth in the Renewable Standard (RFS2). The total requirement proposed for 2018 was 19.24 billion gallons including 4.24 billion gallons. The implication is that the proposed mandate for conventional biofuels, largely grain-based ethanol was 15 billion gallons.

Global Equities Show Little Change on the Week

There was very little change in the global aggregate performance. The U.S. market was little changed, but banking posted a good gain, while retail and energy performed the poorest. Internationally, only Latin America was able to outperform and post a modest gain.

Aramco Pricing Adjustments: No Reversal of Strategy

Saudi Arabia's formula prices for August were released. Last month, PIRA indicated that the pricing adjustments clearly discouraged liftings, while pricing for August barrels is not reversing that stance to any significant degree. Cuts were made for Asia, but they were basically in line with market expectations. European pricing was raised in line with a narrower discount on Urals. U.S. pricing was left unchanged on all but Arab Extra Light, after having been raised significantly for July barrels and reflected a clear willingness to let liftings fall. Pricing for September barrels will be closely watched for signals of a greater willingness to push barrels into the market or let the market work through what is typically a shoulder month, before rising 4Q demand establishes a firmer floor.

Saudi Arabia: Financial Drain of FX Reserves Lessens in May

Saudi’s foreign exchange reserves for May were released and indicate a much reduced draw for May. May reserves fell only $1.23 billion USD, with the 3-month drain rate easing to only $5.02 billion USD, the slowest call on FX reserves since May 2016.

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.

Offshore Wind Update: Total Capex Forecast at €402bn over 2017-2026

16 1DouglasWestwood WestwoodInsightlogoWestwood’s most recent edition of the Word Offshore Wind Market Forecast is now available. The report features a restructured market forecast, splitting global Capex into planning and development, hardware and installation expenditure, together totalling €402bn over the 2017-2026 period.

Key Conclusions:

  • Total Capex is projected at €402bn over 2017-2026.
  • Global cumulative capacity is forecast to grow from 16.4 GW in 2017 to 94.0 GW by 2026*.
  • The UK, China and Germany are the three largest contributors to total capacity additions.
  • Capex across the UK, China and Germany is forecast at €217bn, accounting for approximately 54% of total global expenditure*.
  • Opex is expected to amount to €68bn, with nearly 70% of this expected to be spent across the UK, Germany and China*.
  • Global hardware Capex is expected to total €288.0bn versus installation Capex at €88.6bn and planning & development at €25.6 over the 2017-2026 period*.

*All figures are inclusive of projects yet to develop past conceptual phases.

16 2DW OffshoreWind Capital Expenditure by Country 2016 2026

Since the 2016 edition of this report, the offshore wind industry has experienced a number of changes, which include the evolution in turbine size, growth in project scale, supply chain consolidation and cost efficiencies. In 2016 the industry saw the installation of the very first US offshore wind farm, whilst in 2017 the UK announced the achievement of its 2020 levelised cost of electricity (LCoE) target 4 years ahead of schedule. As the market is becoming less reliant on government subsidies, DONG Energy and EnBW have won the first zero-subsidy bids in German auctions.

Westwood’s new report now features global project listings and a more in-depth Capex analysis – including component breakdown – and country-specific commentary, reflecting on announced renewables obligations. Tracking the industry on a project by project basis, Westwood offers a comprehensive view on the significant opportunities for the wind supply chain over the next decade. Given the increased focus on renewables, the industry will continue to attract investment from utilities, large engineering and service contractors, as well as upstream oil and gas companies.

This report is therefore a must have for vessel contractors, OEMs, design companies and private sector investors.

Report Contents:

  • Key Drivers and Indicators
  • Project Development and Commercial Insights
  • Global to Country Capex and Opex Market Forecasts
  • Segment Market Forecasts
  • Project Listings

PIRA Energy Market Recap for the Week Ending June 5, 2017

17PIRALogoImproving Economic Outlook, Determined OPEC and Tightening Balances Should Improve Prices

An improving global economic outlook, determined OPEC, tightening supply/demand balances and constructive positioning should lift oil prices. Market sentiment has been extremely bearish, unduly so in PIRA’s opinion because we do not see oil markets flooded with shale oil, China’s economy is not declining but continues steady growth and OPEC’s decision to extend cuts will substantially reduce supply. With global crude demand increasing sharply while supply grows modestly, substantial offshore and onshore crude inventory declines are forecast which should lift oil prices. Global geopolitical risks to supply remain elevated. Global refinery runs are outpacing capacity additions, tightening utilization and supporting generally healthy refinery margins in 2017.

Recovery Stalls on the Weather

Cool Kickoff to Cooling Season Impeding Price Appreciation — While U.S. temperatures this month were close to normal in May, such conditions failed to counter bearish factors (including gas-to-coal switching in the east, as well plentiful hydro out west). Moreover, near-term weather forecasts that extend to mid-June are weighing on Henry Hub (HH), and other prices as they favor decidedly lower temperature readings than those of a year ago — and also cooler than normal.

Prices Heat Up Ahead of Summer in a Parched Europe

While weather has been keeping demand at year ago levels, hydro generation during May has been a more bullish price driver, with our balances showing sizeable declines across France and Southern markets (over 33% down year-over-year combined) setting multi-year lows. Our modeling has been based on almost 6 GW of additional nuclear year-over-year for France in 3Q 2017, but the current poor water levels exacerbate the risks of cooling-related unavailability, even at relatively lower air temperatures. Spanish 3Q 17 prices have increased to a level that implies that about 10 GW of combined coal and gas will be needed to run in the summer, about 1 GW above expectations. The back of the French curve has also rebounded, as the outlook for firm capacity (nuclear and coal) in France is looking increasingly uncertain, following Macron’s election and his appointment of Hulot as Energy Minister. As Macron’s government defines its energy policy, there are risks that the French system will further tighten – especially during the winter months.

Evenings Star

Following two very weak months in the low 6,000s, NP15 on-peak implied heat rates increased to the 8,000 mark in May thanks to market tightness during the evening hours of two heat waves amid ongoing generation outages. June on-peak prices have been revised up reflecting near-term weather risks. Positive adjustments for Palo Verde extend across the curve. While projections for Cal hubs beyond June are little changed, we note upside risks associated with weather, fire-related transmission outages, and SoCal gas supply.

Ethanol Prices Climbed in May

Manufacturing margins improved. Ethanol sold at a discount to gasoline in Chicago and New York. D6 RIN values soared at the end of the month. The 2017/2018 sugarcane harvest in Brazil’s South-Central region ramped up slowly due to heavy rain. European ethanol prices peaked during most of May but plunged at the end of the month.

Rebalancing Begins as U.S. Crude Stocks Decline in May

The rebalancing of oil markets has begun, with tangible signs of declines in the large surplus that developed in North America over the past two years. U.S. crude oil stocks declined some 20 million barrels in May, on the heels of a smaller draw in April. Larger crude stock draws are coming this summer. U.S. crude production is growing again, primarily in the Permian Basin. But that growth is being absorbed by higher refinery runs and increasing crude exports. Western Canadian supplies are recovering from the recent Syncrude fire, with more growth in bitumen output expected by year-end from several oil sands projects. More pipeline projects are being planned, following the recent start-up of the DAPL pipeline in North Dakota.

Hydro and Seasonal LNG Work Against Injection Needs

Gas-to-power demand has been supported by a power market with weak nuclear and hydro production for much of the year. Now that nuclear production is back to a seasonally normal 57 GW, the focus turns more squarely onto hydro production, where PIRA anticipates output to be 23.4% lower than normal this year, which should provide strong support for gas demand from power generators. Even though nuclear production has normalized, there is a serious risk for the low hydro situation to bring nuclear production back in the focus through cooling water needs for these generators, as we saw in 2003, when nuclear power production was forcibly reduced by 3 GW over July/August.

Coal Prices Hold Up, Bearish Moves Lie Ahead

The coal market has found some support from robust coal demand in Asia and a weaker U.S. dollar. However, some of the key pillars of strength on the demand side will soon weaken, which will force the supply side to choose between volumes and price. China’s import demand is expected to remain above prior-year levels in May and June, although rebounding domestic production, adequate stockpiles and fading demand growth should pull imports (and price) lower.

Busy Week for Data, Some Surprises but No Changes to Outlook

The recent pace of job growth in the U.S. was disappointing, though hardly alarming. The most eye-catching part of the May labor market report, in fact, was the fourth consecutive monthly decline in the unemployment rate. In spite of a tighter labor market, however, there are few signs of economic overheating. In Europe, the labor market continues to improve, but inflation remains subdued. In Japan, evidence for faster growth continued to pile up. Business confidence in China declined in May, and hinted at a modest slowing in activity going forward.

Propane Stocks Increase at Largest Volume of Current Injection Season

Propane stocks increased by 3.4 million barrels, which is the largest weekly build of the current injection season. Propane exports dropped to 586 MB/D. The decline in exports was expected due to the number of reported cargo cancellations. Stocks in PADDs I, IV and V are in good shape being in the mid-range of the 5-year average. Stocks in PADDs II and III are still relatively low being at the low of the 5-year average for this time of the year. Propane imports soared to 208 MB/D, which implies increasing Canadian propane field production. Propane demand increased to 927 MB/D.

RGGI: States’ Least Common Denominator Effort?

Pricing for the benchmark RGGI contract is low, and the June auction will introduce more supply. There are enough allowances in circulation to cover the full Compliance Period reconciliation in March 2018, but compliance players must acquire allowances by participating in auctions and/or engaging the secondary market. The RGGI Program Review continues, with stakeholders awaiting Policy Case modeling. RGGI seems to lack ambition for anything more than a “least common denominator” approach for linked carbon efforts. PIRA expects resistance to further significant price drops as there is only limited additional downside left before the floor price is reached. PIRA does not see moves toward higher allowance pricing until clearer policy signals emerge later this year.

Algeria Comes Face to Face with Emerging LNG Surplus

The emerging global LNG supply surplus is already rearing its head in Asia, influencing everything from LNG spot prices to long-term negotiations between Qatar and Japan, which are becoming testier by week. The recent surge of LNG imports into the Mediterranean will continue to be a major headache for Algeria, which does not have the marketing flexibility of a Norway or a Russia. Already underway, the surplus will increasingly spill into the Mediterranean in the second half of 2017, as Qatar needs to reposition volumes in order not to undermine Platts JKM prices in Asia, and the best place to do so from a pricing standpoint at the moment is in the Mediterranean.

Japan Maintenance Continues on Track

Runs continued to decline amid increasing turnarounds. Crude imports fell back about 1 MMB/D and that produced a 3.4 million barrel crude stock draw. Crude stocks are again closing in on their record low. Finished product stocks drew a modest 0.2 million barrels. Implied major product demand was fractionally change, with strength in gasoline, kero and jet, offsetting weakness in fuel oil. Refining margins were higher on the week by $0.35/Bbl, but remain soft. The implied marketing margin fell for the third straight week, and are now just under their historical mean levels. What had been a helpful cushion and offset to weak refining margins has now largely evaporated.

U.S. Ethanol-blended Gasoline Manufacture Jumps

Ethanol-blended gasoline manufacture increased to a nine-month high 9,421 MB/D the week ending May 26 from 9,394 MB/D during the preceding week. This was the fifth highest volume on record. Inventories built by 79 thousand barrels to 22.8 million barrels, up 2.0 million barrels (9.6%) from this time last year. Domestic ethanol production rose 10 MB/D to 1,020 MB/D.

Iberia is Quietly Linking More and More with the Rest of Europe

Europe will be buying more LNG to replace declining production in N.W. Europe. In this context, Iberian gas balances will be gaining sway over the broader European landscape, as Spain tends to be the most desirable location to first deliver LNG. For now, logistical constraints will keep the Spanish step towards a broader role at bay, which is why Spain tends to have the most expensive pricing among Central and Western European hubs. Iberia remains relatively isolated from the rest of the Continental market making the Spanish hub susceptible to price spikes, when LNG is not readily or cheaply available.

ERCOT Market Design – Putting the NRG/Calpine Proposals into Perspective

Market design has been garnering increasing attention in ERCOT as low power prices resulting from weak natural gas prices and increased renewables penetration continue to challenge owners of merchant generation. NRG and Calpine on May 10 filed a jointly commissioned report with the Public Utility Commission of Texas (PUCT). The report contains suggestions for changes to the market design in ERCOT, ranging from tweaks to the Operating Reserve Demand Curve to an overhaul of the transmission planning and cost allocation process in Texas. Generally, these proposals are intended to improve price signals, in particular offering more support for generators located near load centers and congested areas of the grid. The proposed changes will likely be discussed at the PUCT as well as in ERCOT stakeholder committees.

Trump’s Paris Decision Underscores Policy Trajectory of Past Five Months

President Trump formally announced on June 1 that the U.S. would pull out of the Paris Agreement covering post-2020 greenhouse gas (GHG) emissions. The tone of the statement was rather clear – offering signals to both his supporters and to the overwhelming majority of the world’s countries that had signed the agreement and support coordinated climate action. While resonating strongly in the broader media, the symbolic decision is not necessarily milestone news for energy sector fundamentals. Rather, this announcement highlights a consistent trajectory of Trump’s energy/environmental policy activities of the past five months – with a number of key detailed policy decisions still ahead.

U.S. Commercial Stocks Again Below Last Year But Now Will Stay Below

U.S. oil demand (adjusted) in May has been very strong with the latest four weeks up 5.0% (or 950 MB/D) versus last year. High runs and strong demand pulled overall stocks 5.2 million barrels lower last week with crude stocks falling 6.4 million barrels, showing its eighth consecutive weekly draw and the largest of the year. Gasoline inventories drew again last week, declining 2.9 million barrels. This week has another large crude stock decline of 5.5 million barrels with Cushing crude stocks decreasing 1.2 million barrels.

Despite Weaker Energy Markets, Financial Stresses Remain Low

In general, financial stresses remain extremely low, as the St Louis Fed stress index again moved sharply lower and the S&P 500 continued its climb above the 2,400 level, with it again setting new record highs. Commodities had another negative week, particularly energy, but investment grade, high yield, and emerging market debt all posted positive performances, though the price on high yield energy debt fell.

Opening Print

When the markets think about the Dakotas they typically envision spring wheat (Minneapolis contract) along with some specialty crops like sunflowers, flax, and others. The market also sees low corn and soybean yields along with poor cash basis as has historically been the case, making this area more of an afterthought that anything else. However, as the traditional corn and soybean Belt becomes more and more redefined towards the west, it would be foolish to just write off this area as an add on.

EIA Affirms Higher Baseline, but Nixes Subsequent Growth

The NYMEX futures selloff continued yesterday in the wake of the latest EIA storage report which detailed far greater injections than industry expectations. The price response was likely amplified by reactions from speculators which have been sitting on large and growing net long positions this year. From a fundamental standpoint the most recent EIA Monthly Crude Oil and Natural Gas Production (914) report — updated to March 2017 — affirms the higher baseline of U.S. production established in last month’s report (for Feb 2017) but fails to show follow-through for March. The higher baseline of production reaffirmed by the EIA this month results in greater impact on the year-over-year comparisons, or, as is the case, smaller deficits. Yet, the lack of momentum following February’s production numbers adds uncertainty on the timing of the production recovery.

Split of German-Austria Price Zone to Shift Flows, but Limited Impact on Germany

E-Control and BNetzA, the Austrian and German regulators, agreed to the introduction of a congestion management scheme at the border between the two countries. The new scheme, starting from October 1, 2018, limits the long-term cross-border capacity to at least 4.9 GW. This decision would lead to a considerable shift of the flows in and out of Austria. On balance the impact on the German pricing dynamics should stay fairly limited. A large amount of German commercial flows toward Austria are to be considered transit flows toward Switzerland or Czech Republic, so those markets should be able to import directly from Germany, when needed.

Coal Pricing Bucks Weaker Oil Market, Shifts Higher on Asian Demand

Despite the downshift in oil and gas prices, seaborne coal prices rallied this week, with FOB Newcastle prices leading the charge, rising by $2.50/mt across the forward curve. CIF ARA and FOB Richards Bay forwards increased by $1.50/mt at the front of the curve, however, while backwardation in the CIF ARA forward curve widened this week, backwardation in the FOB Richards Bay curve narrowed slightly. Strength on the demand side continues to underpin the front of the market, particularly in Asia. However, PIRA believes that import demand from China and elsewhere in Asia will soon fade, particularly if summer weather is not as supportive as the July/August heatwave last year.

U.S. March 2017 DOE Monthly Revisions: Demand and Stocks

EIA just released its final monthly March 2017 (PSM) U.S. oil supply/demand data. March 2017 demand came in at 20.0 MMB/D, which was 427 MB/D higher than the weeklies. Total product demand grew 2.1% versus year-ago or 417 MB/D, compared to the March 2016 PSM data. It reversed the year-on-year demand decline seen in February, which had been the first decline seen since July 2016. End-March total commercial stocks stood at 1,341 million barrels. Compared to final March 2016 PSA data, total commercial stocks were higher than year-ago by 14.6 million barrels, versus an excess of 36.3 million barrels seen at end-February.

Global Equities Still Setting Record Highs

Many of the benchmark equity indices continue to set record highs. The U.S. S&P 500 continued its climb above the 2,400 level. Housing, consumer discretionary, and materials performed the best on the week, while energy was again the clear laggard. International indices also did well, with Japan doing the best, while Europe and global, ex-U.S., also outperformed. Latin America fell back on the week.

Saudi Arabia: Despite Higher Revenues, Its Financial Cushion Continues Falling

Saudi’s foreign exchange reserves for April showed a continuing decline that has averaged about $8 billion/month since 4Q16. Many of the other financial indicators that we track remain stable. Since the joint OPEC / Non-OPEC agreement was negotiated at the November 2016 OPEC meeting, Saudi oil revenues are estimated to have risen by $26 billion annualized, or 22%. In this context, the agreement has been effective in boosting top line revenues, along with reducing global supply and inventory overhangs. Even so, it has yet to reverse the drain on Saudi financial reserves, though a significant financial cushion remains.

March 2017 U.S. Crude Growth Decelerates

U.S. crude and condensate actuals for March 2017 came in at 9.1 MMB/D, up 62 MB/D month-on-month, down 76 MB/D year-on-year. Texas production grew only 3 MB/D month-on-month, and may be signaling bottlenecks that are slowing growth.

Are Companies Paying Too Much for Permian Acreage?

The Permian has seen a frenzy of M&A activity. Over $17B of deals have been made so far this year at an average price of $24M/acre, with some transactions seeing valuations in excess of $50M/acre. The prolific nature of the Permian with its multiple stacked intervals and high EURs appears to justify these high acquisitions prices. PIRA analysis shows that based on the average transaction price of $24M/acre, only three wells per 320 acre spacing unit are needed to achieve a land acquisition laden 10% IRR after tax at $50 WTI. In much of the play, up to 12 wells could potentially be placed on a 320 acre unit. However, an important key variable is the pace of development, with rapid development necessary to achieve acceptable rates of return.

Aramco Pricing Adjustments: Clearly Discouraging Liftings

Saudi Arabia's formula prices for July were just released. PIRA analysis of those terms concludes that liftings are clearly being discouraged in all regions. Terms were raised in the three major markets more than our regional drivers would have suggested. In addition, Saudi direct burn of crude peaks in summer, meaning there is less available for export. Lastly, the pricing terms are consistent with the decision coming out of the most recent OPEC meeting to extend the production cuts through 1Q18, and do whatever it takes to continue cleaning up the global excess.

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.

Westwood Insight: UK Exploration Drilling in 2017 – a Bumper Year in Prospect or are Explorers Being too Optimistic?

16 1WestwoodGlobalenergylogoSix of the offshore exploration wells that are set to drill in the UK in 2017 have an average pre-drill prospect volume of over 100 million barrels of oil equivalent (mmboe). Does this signal a renaissance for UK exploration or are explorers being overly optimistic when the average commercial discovery size has been only 18 mmboe since 2012 in this ‘super-mature’ basin?

16 2WestwoodEnergy Commercial Discoveries vs 2017 Pre drill ResourcesResources discovered in the ten years 2007 – 2016 vs pre-drill prospective volumes for planned 2017 exploration wells in the UK. Source: Westwood analysis

Exploration commercial success rates offshore the UK have improved in the past two years to over 40% and represent the highest for over a decade, but with the majority of targets comprising near-field prospects, discoveries have generally been small. However, six conventional exploration wells planned in the UK this year have the combined potential to discover close to 700 mmboe according to operators. Is this realistic?

One reason to be cautious is that there is a tendency for explorers to over-estimate pre-drill actual discovery sizes – typically by a factor of 1.5 – 2 in both the UK and Norway, according to Westwood analysis. A second reason is that in the UK, the 200+ conventional exploration wells drilled in the past decade have resulted in only two commercial discoveries that are 100 mmboe or greater (i.e. 1 in a 100).

So why the apparent optimism in 2017? One explanation could be the demographic of the exploration drillers set to spin the bit this year. Five of the six wells are operated by major oil companies – BP, Statoil (two), Total and CNOOC/Nexen with minnow Azinor Catalyst operating the sixth.

Bigger companies need bigger prospects to move the needle. Another explanation is that to justify exploration investment today, discoveries need to be economic to develop at $40/bbl, which also pushes the required volume threshold higher.

There is a trade-off though. To find big prospects, companies are having to target riskier plays and it is telling that all six wells are targeting either high temperature/high pressure or stratigraphic traps. Westwood estimates an average chance of commercial success for the six prospects of 21% compared with the 40% commercial success rate in 2017. Overall, Westwood expects success rates in the UK to fall in 2017 but, if even one of the high impact prospects works, discovered volumes could be the highest since 2011.

Whilst statistically, the resource pool sizes being targeted in 2017 may look improbably large, it does signal that big oil companies remain optimistic about North Sea exploration. The recent increase in M&A activity partly driven by private equity funding, an overall reduction in costs, an increase in efficiency and improvement in exploration success rates are all fueling greater confidence. This, along with the implementation of a new and more effective Government regulator in the OGA, means the UK outlook is becoming more positive.

David Moseley, Reports Manager, Westwood Energy, NW Europe

PIRA Energy Market Recap for the Week Ending May 30, 2017

17PIRALogoShale Growth Accelerates

The first quarter marked the first time since 2014 that the shale industry, in aggregate, reported positive net income. The quarter saw Eagle Ford production stabilize following seven quarters of declines, Bakken production recovered following a harsh winter, and Permian growth accelerated on continued activity additions. Guidance from public shale operators for 2017 points to a 60% year-over-year increase in capex and an 18% year-over-year increase in production. As activity quickly ramps, service price inflation is taking hold. Most operators are budgeting for cost inflation between 5-15% year-over-year. However, offsetting part of this inflation is continued efficiencies as operators structurally reduce cost and improve well productivity.

Natural Gas Curve Poised to Steepen

At present, the front of the futures curve appears fairly valued based on fundamentals, with further gains during the peak cooling months dependent on help from weather. Moreover, we acknowledge the possibility of short-term setbacks should cooling demand fail to significantly materialize. In contrast to our cautionary stance on near-term prices, we remain steadfast in our expectation that more significant price recovery will unfold during the upcoming winter.

First Wave LNG Gathers Force

Do not read too much into the first U.S. cargo scheduled for N.W. Europe. It is unclear whether it means the so called “market of last resort” is receiving a cargo due to length elsewhere or because the cargo is being used as leverage against other sellers, including pipeline suppliers. U.S. cargoes have proven time and again over the past year that multiple agendas are driving destinations beyond profitability.

Stocks Lower Year-over-Year on Higher Coal Demand

March 2017 electric power sector stockpiles came in at 163.9 MMst according to last week's EIA press release, 15% lower than last year. This was in line with PIRA’s estimates of March stockpiles between 163 and 164 MMst. PIRA forecasts that stocks in April and May will remain below last year’s levels on higher year-over-year coal demand.

Market Sentiment Slips Along With Cape Freight Rates

The Capsesize freight market dipped this month amid a backdrop of weakening iron ore pricing and bearish sentiment in China. There has been a large recovery in Brazilian iron ore exports, although vessel supply has been growing modestly. PIRA expects that the cape market will cool in the short-term, but rebound strongly later in the year.

Canadian Exports Restrained By Local Demand

Emerging cross-currents should serve to keep a lid on Canadian exports through the remainder of the injection season. Although low-cost Western Canadian sedimentary basin (WCSB) gas held in storage is well-positioned to bolster flows stateside, a more pronounced uptick in cross-border trade will remain dependent on cooling degree days across the Lower 48 this summer. Moreover, for the balance of the injection season, local demand is set to show big gains — mostly from the Canadian oil sands — limiting available pipeline flows into the U.S. Producer guidance remains positive, with renewed optimism pointing to summer production gains. Certainly, an uptick in capital flows alongside enthusiasm for WCSB pure-play gas producers should keep a floor under U.S-bound export volumes this summer.

U.S. Commercial Stocks Draw, Demand Increases

Overall commercial stocks drew by 3.5 million barrels for the latest reporting week, with crude oil stocks leading the way, falling by 4.4 million barrels. While overall product inventory added 0.9 million barrels, the four major products declined by about 1.8 million barrels. Adjusted product demand rose sharply for the latest week moving 840 MB/D higher, with four-week average demand up 4.7% year-on-year, the highest gain seen since earlier in the year. Continuing firm refining margins certainly contributed to a further 160 MB/D increase in refinery runs to 17.28 MMB/D, one of the highest levels over the past decade.

Fed Data Show Healthy Growth, Moderate Inflation, and Low Debt

Activity-related indicators have been positive for the growth outlook lately: the GDP tracking estimate has pointed to fast economic expansion during the second quarter, and manufacturing surveys project a major strengthening in business investment. Data on household debt continue to look non-threatening for the growth outlook. Inflationary expectations remain well-anchored. An alternate measure of underlying inflation corroborated the Core CPI’s recent finding about a softening in inflationary pressure.

Extension of OPEC Cuts Will Exacerbate Seasonal Rate Decline

The steady decline in VLCC rates seen since the beginning of the year was interrupted in April, but resumed in May as the tonnage queue swelled to a nine-month high. The extension of OPEC cuts in 3Q17 (and beyond) and fleet growth will put added pressure on tanker rates during the summer months.

U.S. Ethanol Prices Bottom

U.S. ethanol prices bottomed the week ending May 19 and manufacturing margins improved. April D6 RIN generation was lower, and values soared. Brazil South-Center region sugarcane harvest is ramping up slowly. Hydrous ethanol is competitive with gasoline in Sao Paulo and Mato Grosso. European ethanol prices peak.

Opening Print

With almost all of the severe weather this weekend limited to the southern fringes of major corn-producing areas, there appears to be nowhere to hide for prices as traders return from the long holiday weekend.

Time is Passing Quickly on Storage Injections

The opportunity cost associated with consistently low injection rates is starting to put Europe at risk of feeling a supply pinch come winter time. Such risk may not fully temper the slide of prompt prices but will add to the justification for not selling off the back of the curve any time soon. Assumptions on climate change aside, lower than normal stocks often create more fourth quarter price volatility, as even the hint of colder than normal weather can create risk. With U.K. storage already sidelined and Dutch swing production compromised by aging fields and policy changes, pockets of lower than normal storage on the Continent will only add to the anxiety.

3Q Italian Prices Continue to Climb, Factoring in Exceptionally Low Hydro Output and Hotter Weather

While Italian spot prices have been fairly supported this month, 3Q contracts have been more buoyant. In fact, with gas prices trading sideways, low hydro reservoirs are pushing power prices above €51/MWh, widening the gap with spot levels for June contracts and pushing the spark spreads to new highs. While we have pointed out for a while that there are bullish risks for Italian prices, the market may have now gone too far, as current 3Q prices assume extremely low hydro together with higher demand.

Beginning of the End or One-Off Spot Trade?

Potentially flooding the near-term Atlantic Basin balances even further, the second quarter outlook for the NBP forward curve reveals an extended tie with U.S. Gulf LNG variable costs through the summer – an immediate discount that could be detrimental to flows to NBP in the short term. U.S. sees better netbacks in other summer demand peak markets.

PJM REC Market Balances Tightening

Oversupply continues to weigh on PJM REC markets, and pricing has continued to slide in 2017. A number of factors point to potential pricing upside going forward, including accelerating demand helped by recent policy developments. Corporate renewable buyers have played a large role in recent wind new build and their associated RECs may not be fully available to the compliance market. That said, the pace of RPS requirements from state RPS targets slows considerably after 2020, even as the phase-out of the federal wind PTC leads to significant escalation of effective new wind project costs. Additional market risks stem from transmission projects that could flood the market with RECs after 2020.

Japan Demands Higher, While Runs Continue Lower

Runs continued to decline amid increasing turnarounds. Crude imports rose about 1 MMB/D and produced a 2.2 million barrels crude stock build. Finished product stocks also built, almost 1 million barrels, but there were draws in gasoil and fuel oil stocks. Major product implied demand rose 136 MB/D on the week and the trend rate should begin to turn irregularly higher over the next few weeks. Refining margins were unchanged on the week and remain soft. The implied marketing margin fell for the second straight week. Despite the decline, those spreads remain above their statistical mean.

Financial Stresses Remain Very Low, Credit Conditions Constructive

In general, financial stresses remain extremely low. The S&P 500 continued its climb above the 2,400 level. Commodities had a negative week, particularly energy, but high yield debt, emerging market debt, and high yield energy debt all posted positive performance. In the case of energy, both investment grade credit and high yield credit, are outperforming the physical barrel.

U.S. Ethanol Inventories Decrease

U.S. ethanol inventories declined by 730 thousand barrels last week to 22.7 million barrels, the second largest weekly drop this year. Domestic ethanol production fell 17 MB/D to 1,010 MB/D, erasing most of the gains achieved in the previous week. Ethanol-blended gasoline manufacture declined to 9,394 MB/D from a 40-week high 9,408 MB/D in the preceding week.

If Realized, Summer Weather Guidance Bullish for Price

Since becoming prompt, the June NYMEX contract has traded between $3.14/MMBTU and $3.43/MMBTU, with a majority of trading in the lower half of the range. Last week’s report, which came in above consensus (again), likely raised further concerns about the relative looseness in the balances. Interestingly, demand accommodations in the power sector are already allowing for a steady rate of injections of late. Yet, warmer than normal weather could markedly alter this outcome. Expressly, if summer temperatures were to align anywhere close to last year, prices would likely rise ~20 to 25% above our Reference Case to illicit enough baseload gas-to-coal switching to offset higher loads. At ~$4.0/MMBTU NYMEX realizations, gas power generation in the Midwest and in parts of the Eastern seaboard would concede market share to higher cost coals — a reality that was on display during the 2014 injection season. With this in mind, the possible significant change in the weather ahead should keep the market from retesting seasonal lows, with the stalled rally likely to restart with a little encouragement from Mother Nature.

Bullish Rally Runs Out of Steam, Coal Market Waiting on Seasonal Demand

The bullish rally that prevailed the week of May 15th spilled into the following Monday, with prompt prices rising $1.00/mt over the first session of the week. However, the market could not hold on to the gains, with prices falling consistently throughout the balance of the week. CIF ARA forwards were able to post a modest week-over-week gain, while FOB Richards Bay and FOB Newcastle forwards finished Friday below week-ago levels. The relative strength in CIF ARA prices compared to other pricing points over the past several weeks is largely misplaced in PIRA’s view. Until the brunt of summer demand kicks in, seaborne coal prices are expected to be largely range-bound with a modest downside bias.

WCI Carbon Auction Back to Full Subscription

The May WCI current vintage auction returned to full subscription and cleared above the floor price. Should the August auction also clear above the reserve price, November 2017 will start to see the (gradual) return to auction of the considerable volumes of unsold state-owned allowances. Although significant additional buying is necessary at the remaining 2017 auctions, these results, along with the large offset issuance on May 24th, help to reduce the risk that sources will not have adequate holdings of CP2 compliance instruments for the November 2018 reconciliation (weakening the justification for a premium for CP2 vintages). PIRA does still expect that some unsold allowances will be moved to the reserve should the cap and trade amendments be finalized.

Global Equities Still Setting Record Highs

Many of the benchmark equity indices continue to set record highs. The U.S. S&P 500 continued its climb above the 2,400 level. Utilities, technology, and consumer staples performed the best on the week, while energy was the clear laggard. International indices also did well, with emerging Asia, China, and Latin America doing the best.

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.

PIRA Energy Market Recap for the Week Ending May 22, 2017

16PIRALogoRising Prominence of the Asia-Pacific Region as a Global Refining Center

Oil markets are rebalancing. PIRA expects that with the ongoing OPEC output cuts likely to be extended and strong demand growth, it is just a matter of time before it shows up in reported onshore stock declines. Asian refiners are likely to keep buying more barrels from the Atlantic Basin as the Brent-Dubai price spread will stay narrow. Asia’s oil demand growth will outpace incremental refinery runs, and net exports of key products are expected to stabilize over 2017-18. Asian refineries are getting larger and more sophisticated, helping them to be more competitive in a volatile and challenging refining environment.

Byproduct Gas Picks Up Steam, But Obstacles Persists

The market has given back some of last week’s gains as uncertainty over relative supply/demand tightness resurfaces with the foreseeable pick-up in inventory restocking. Among other factors, the seemingly inevitable shale oil renaissance in Texas and Oklahoma — and its subsequent impact on byproduct gas volumes — weighs heavily on market sentiment. Yet, some recent producer earnings calls may help ease concerns about a fast-approaching deluge of associated dry gas production growth in the region, at least in the immediate term. Producers in the region have been guiding towards relatively muted Y/Y gas growth in comparison to their oil targets, citing ongoing price, pipe, and processing issues — the resulting risk to byproduct gas production during the injection season may help alleviate fears of oversupply.

Egypt LNG Cargo Deferments Suggest Diminishing Role in Balancing the Global LNG Market

As quickly as it swept into the LNG market in mid-2015, Egypt appears to be preparing for an almost equally sudden exit by end-2018. Moreover, the sudden loss of Egypt as a key demand center will be amplified by how quickly it will build on the resumption of its LNG exports since mid-2016.

Appointment of Energy Minister Moves the Back of the French Curve

The recently elected French president, Emmanuel Macron, appears to confirm his commitment to the French energy transition. On May 17, Nicolas Hulot was appointed as the minister responsible for energy in the new government. Considered an environmentalist in favor of renewable energy, Hulot had been arguing earlier during the electoral campaign that EDF needs to re-align its strategy to the French energy transition, supporting the idea that nuclear’s share within the mix must be reduced. The markets have been quick to react to the news, with the back of the French curve moving up substantially.

Prices Slip in Shoulder, But Upside Factors Mount

Coal-fired generation fell seasonally in April, but with natural gas prices ~60% higher Y/Y, coal burn was up 14% Y/Y. Though U.S. coal prices have slipped over the last month on shoulder season demand, an upward revision to PIRA’s injection season natural gas price forecast and other factors point to higher PRB and ILB coal prices this summer.

U.S. Internals of Data Constructive

Overall commercial stocks built 4.3 million barrels this past week as crude oil stocks fell 1.8 million barrels, the four major product inventories drew 2.2 million barrels and all other products built by 8.2 million barrels, the majority of which was NGLs. Adjusted product demand was up 3.3%, 630 MB/D, over last year in the latest four weeks. Crude runs surged 360 MB/D this past week to 17.12 MMB/D, supported by strong refining margins.

Broad-Based World Industrial Turnaround Becoming More Evident

Global industrial production and trade activity slowed throughout 2015, but it began to stage a comeback last year. Recent country-level manufacturing data were mixed. But in PIRA’s judgment, positive readings far outweighed disappointing ones – the current global manufacturing turnaround, therefore, is expected to gather further strength and become more broad-based. A sharp strengthening in U.S. manufacturing output during April was particularly encouraging.

Propane Stocks Just Above Five-Year Lows for This Time of Year

Propane inventories increased last week by 580 MB, but the total propane inventory of 42.2 MMB is close to the five-year average low for this time of the year. The EIA reported that propane exports soared last week to 1.25 million barrels per day. This is contrary to the number of propane cargo cancellations reported. A source states that the cancelled cargoes were picked up at a discount and routed to build Asian inventories. PADD II inventories grew, PADD III inventories were unchanged, and PADD I inventories declined.

U.S. Ethanol Prices Rally

Ethanol reached an eight-month low Wednesday May 10, but rebounded later in the week. Manufacturing margins were sharply lower. The EPA sent the proposed biofuel requirements for 2018 and biomass-based diesel to the OMB for approval. D6 RIN prices rebounded. Kinder-Morgan redirected ethanol from its Argo, Illinois terminal. The harvest in to the South-Central region of Brazil got off to a slow start to the 2017/2018 season.

Opening Print

47 degrees Fahrenheit with a cold and steady rain greeted us Saturday at our first stop in northern Illinois, about an hour west of Chicago’s city limits. Our producer-friend, who farms on the border of DeKalb and Kane counties, said “not much to see around here” as we climbed into his pickup truck. No, there was not much to see, but there was plenty to talk about.

A Weaker U.S. Dollar Propels the Coal Market to a Considerable Rebound

Coal pricing rebounded notably last week, with front end CIF ARA forward prices in particular rebounding to levels not seen since the aftermath of Cyclone Debbie on an over $4.00/mt W/W increase. A weaker USD, largely in response to political turmoil in the U.S. was a driving force behind the strength in pricing this week. The release of Chinese energy data was a confirmation of PIRA’s reference case; strength on the demand side will continue for the time being, although a continuation in the recovery in domestic coal production will be a harbinger of weaker balances and prices for 2H17.

Stresses Low, Commodities Rebound

In general, financial stresses remain extremely low, though there was increased drama this past week. The S&P 500 managed to climb above and hold the 2,400 level, but then hit an air pocket, from which it tried to climb back. With that air pocket, the noted divergence between bank equity performance (higher) and a flatter yield curve, began to come back into better alignment, though the divergence remains. Commodities had a positive week, and energy outperformed. The dollar was particularly weak, down 2% on the week.

Japan Returning to Norms, Post-Holiday

Following the Golden Week holidays most of the S/D data reflected a return to more normal patterns. That means gasoline demand ebbed from holiday hyped levels and gasoil demand began to rebound. Runs continued to reflect increased maintenance. Crude oil stocks posted a 5.4 million barrels draw, while finished products built 1.6 million barrels. The weekly stock build rate remained about 32 MB/D, like the previous week.

U.S. Ethanol Inventories Build for the First Time in Three Weeks

Ethanol-blended gasoline manufacture soared last week, rising to a 40-week high 9,408 MB/D from 9,161 MB/D in the preceding week. Domestic ethanol production rose 21 MB/D to 1,027 MB/D as more plants came back on line following seasonal maintenance. Inventories built by 359 thousand barrels to 23.4 million barrels, up 2.3 million barrels (11.0%) from this time last year.

Storage Spreads are Not Building in Inherent Risks

Given low stocks across Europe, the biggest seasonal storage facility in the U.K. out of commission, and the biggest seasonal storage facility in Benelux experiencing operating issues, you’d expect some interesting storage spreads to start developing – particularly for Germany. These opportunities are not leaping out just yet despite the country’s key position. Looking at historical costs of capacity from the capacity trading platform PRISMA, in combination with forward gas pricing in Germany vs. Britain, an overwhelming reason to max out injections at the moment for peak winter withdrawals does not yet seem to exist as of yet. However, TTF is already being priced to be an important supply source for NBP in the peak cold months of December ’17 to February ’18 at 1Q’18 TTF-NBP spread of -€1.63/MWh.

U.S. Refiners’ RIN Costs down Year-on-Year; April RIN Generation Little Changed

Approximately 5.93 billion RINs were generated in the first four months of 2017, up from 5.89 billion over the comparable period in 2016. D6 RIN generation was up only 0.2% over that period, while D4 and D5 RINs were up 2.4% and 30.6%, respectively. Several public companies with large RIN expenditures over the past few years had a lighter burden in the first quarter of 2017 due to lower RIN prices, profitable trading, and/or the granting of a small refinery exemption for one or more of their facilities. In some cases, companies that have historically suffered large costs due to hefty RIN requirements experienced a net gain last quarter.

Global Equities Still Setting Record Highs

Many of the benchmark equity indices continue to set record highs. After doing so, the U.S. market hit a bit of a downdraft, but then began to recover. Consumer staples, utilities, and energy performed the best on the week, while retail was the clear laggard. International indices outperformed the U.S, with Europe, emerging Asia, China, and Japan doing the best. A significant retrenchment in Brazil’s equity market led to a drop in Latin American performance.

Asian Oil Demand: Temporary Fallback in Demand Growth

Our snapshot of Asian oil demand growth shows a slowdown, which is viewed as temporary and driven by a drop in growth of Chinese apparent demand. PIRA's update of major country Asian product demand indicates that year-on-year growth slowed to 210 MB/D, vs. 740 MB/D in our April snapshot. Reacceleration is expected May-July, with demand growth currently forecast to push 1 MMB/D by mid-summer.

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.

PIRA Energy Market Recap for the Week Ending May 15, 2017

14PIRALogoU.S. Inventory Deficits to Last Year Likely to Widen

U.S. product demand was very strong this past week, pulling up the four week average adjusted demand growth to 4.1%, or almost 800 MB/D over last year. Total commercial stocks drew 3.6 million barrels this past week led by a 5.2 million barrel crude stock draw, the largest weekly decline this year. Cushing crude stocks surprisingly drew 0.4 million barrels last week and another stock decline of 0.3 million barrels is forecast for this week’s data. Inventories of the two major light products are forecast to decline next week, along with another significant crude inventory decline.

Peak Restocking Month Set to Disappoint

After faltering early in the week, NYMEX futures quickly regained lost ground and have now tested the calendar highs set back in early April. Helping to feed the bulls was yesterday’s EIA weekly storage report showing an unexpectedly low build that took the market by surprise — widening the year-over-year storage deficit to 372 BCF. Indeed, it appears that the aggregate storage refill will fall 100 BCF short of the 5-year average — roughly in line with last year’s anemic levels. Yet, while the net monthly build will likely be similar to last May, such a comparison belies the notably different year-over-year trends at work — particularly on the demand side of the U.S. balances, but also in the case of supply given signs a turnaround is finally unfolding.

NBP is Pricing Out U.S. LNG – Should Henry Hub be Concerned?

Current deliveries to N.W. Europe vs. the balance of the Continent highlights a vulnerability to LNG producers and a challenge to marketers, in particular American ones (given the proximity) during shoulder months. In the previous weeks, we highlighted this issue for global LNG markets, but it also is true for Europe on its own. Pipeline producers will try to lock in utilities into high minimum takes to block LNG deliveries in these shoulder months, but there will be an increasing desire for companies to gain ever more flexibility in order to take advantage of LNG length in these vulnerable periods. This pattern has certainly been evident in portions of Southern and Eastern Europe, where the legacy of oil indexation in gas pricing has made it relatively vulnerable to immediate competition from attractively priced spot LNG.

Japan Power Generation Growth Surge Still Threatened by Nuclear Capacity Increases

Japan did an impressive job by stepping up to keep its new LNG contract commitments early this year. But the increased imports may have been temporary – caused by lower LNG prices, colder weather patterns, higher oil prices and in the future, the lingering issue of nuclear restarts could further threaten LNG consumption. The restart of the two Takahama nuclear reactors in Fukui Prefecture (total of 1.7 GW) appears imminent, with Kansai planning to restart unit 4 on May 19. This will have a potentially large downside impact on LNG consumption as opposed to oil going forward.

Back to a Weather Watch

With the May WASDE behind us, the markets will focus on weather and planting progress for the next 6-7 weeks until the end of June and the Acreage report. However, planting progress numbers can be a bit misleading moving forward as they do not take into consideration the number of acres that will need to be replanted.

Malaysia Approves New Ammonia Plant

Malaysia’s Union Cabinet has approved the signing of a Memorandum of Understanding (MoU) for the development of a US$2.1 billion ammonia and urea manufacturing plant in Malaysia. The plant’s capacity is expected to total 1.35 million tpy of ammonia and 2.4 million tpy of urea. Supply will be focused on the Indian market. "The Union Cabinet today gave its ex-post-facto approval to the signing of MoU with Malaysia on the development of a urea and ammonia manufacturing plant in Malaysia," an official release said.

Ethanol Stocks Slightly Lower

U.S. ethanol production rose 20 MB/D last week to 1,006 MB/D. East Coast stocks jumped to a five-year high 8.6 million barrels, though total inventories fell a relatively small 158 thousand barrels to 23.1 million barrels. For the first time in nine months, imports were reported, all of which were received in PADD V. Ethanol-blended gasoline manufacture dipped to 9,161 MB/D from 9,203 MB/D in the preceding week. June ethanol futures were up 0.1¢ to $1.45 per gallon today as of 11:55 A.M. CT.

Propane Inventories Begin to Build

Propane stocks registered a 2 million barrel build, which is the first significant build of the injection season. Total inventories rose to 41.6 MMB, which is 31.5 MMB below last year’s levels. Propane inventories increased in all PADDs. Exports will curb within the upcoming month based on reported cancellations and will most likely remain relatively low through the summer. Declines in exports may not be noticeable in the next several weeks, although should begin by mid-May.

Slower Debt Growth in China Not Yet Hitting Economic Activity

In April, the amount of credit in the Chinese economy continued to increase, but at a slower pace compared to earlier. The Chinese government is likely to maintain its restrictive stance on credit creation, as worries about the debt-to-GDP ratio continue to loom. While credit growth has been a leading indicator of economic activity in China, a slowing in the economy’s momentum has not yet materialized. In the U.S., retail sales for April pointed to a rebound in consumer spending. A reading on core inflation stayed soft, but this is not expected to influence the Fed’s deliberations on policy.

Lower Renewables Firm German Prices. Signs of Flexibility of Wind to Negative Prices Emerge

German day ahead prices have been quite firm so far in May, with reported solar output down by over 2.7 GW year-over-year and wind 0.3 GW year-over-year. However, the German power system has actually seen another period of negative prices, between April 30 and May 1. Coal, lignite, gas, and even nuclear plants have ramped down during the period of negative prices, while German exports have reached a peak for the year at 12.2 GW on April 30. Unlike thermal plants, renewable plants have been typically sheltered by their remuneration structure, but large negative prices are also unveiling some degree of flexibility.

Shoulder Season Slumber; Focus on Capacity Markets

Spot power prices increased year-over-year in April in most Eastern markets driven by rising gas prices, higher cooling loads across the South, and nuclear outages. Henry Hub spot prices continued to hover around the $3 mark in April reflecting a 60% year-over-year increase. PIRA is neutral to near term gas market forwards but remains bullish during heating season 2017-18. Year-over-year power price increases continue through the forecast period but generally fail to keep pace with gas prices as the call on gas-fired generation continues to weaken while efficient CCGT capacity grows. Implied heat rates fell in nearly every market, led by a 36% average drop at PJM-W which is fast becoming the poster child for the dangers of overbuilding.

Japan Holiday Impacts, Pluses and Minuses

Two weeks of data were reported due to the Golden Week holidays. Runs declined, on balance, as further maintenance kicked in. Crude imports ran particularly high and then plunged, which ballooned crude stocks at month-end April, but then corrected lower as we entered May. Finished product stocks fell in the latest week but generally continue their seasonal rise. Demand trends remain largely seasonal and have held up well. Gasoline demand was hyped by the holidays in the latest week with demand besting 1 MMB/D. Gasoil demand fell both weeks as the holiday reduced industrial and commercial activity. Stocks built both weeks by an almost cumulative 1 MMBbls, and 2.28 MMBbls over the last five consecutive weeks. Refining margins have looked increasingly sloppy. The implied marketing margin has improved the past three weeks, which has helped to partially offset the developing weakness in refining.

Coal Prices Continue to Shift Lower, Chinese Demand Fundamentals Strong... For Now

Coal prices continued to shift lower last week despite a notable rebound in the oil market. FOB Newcastle prices declined by the greatest extent, with the entire curve losing more than $2.50/mt compared to the end of last week. The coal market in general continues to search for a new short-term equilibrium following pricing surges both last year and last month. Clear signals out of the Chinese market remain elusive, as imports have remained strong, although domestic production continues to rebound.

European Carbon Prices Stay Low, Trialogue Talks Coming Up

Breaking the trend from prior years, European carbon (EUA) prices failed to rise during the April compliance period, suggesting existing market positions were adequate for compliance. Prices have moved lower in May, with a price rise not expected until August (when auction volumes are lower). “Trialogue” talks on post-2020 market reforms remain the major market wildcard, with EUA price swings possible both ahead of and following the upcoming May 30th meeting. At the same time, the widening EUA delivery spread for 2019 suggests that EUA prices increasingly reflect an ambitious reform package – as well as continuing poor fundamentals in the balance of 2017 and 2018.

Credit Conditions Remain Positive With Low Stress

Financial stresses remain extremely low. The S&P 500 is still trying climb over and hold the 2,400 level. There still remains noted divergence between bank equity performance (higher) and a flatter yield curve. This is still occurring in the major regions (U.S., Europe, and Japan). Commodities remain soft, but energy perked up this week, and we had noted that cash energy had been acting weaker than energy credit would have suggested. Price trends in non-energy-high yield debt still look positive.

U.S. Ethanol Prices Mostly Lower

U.S. ethanol prices declined most of the week ending May 5, but there was some rebound Friday. Manufacturing margins tumbled. 2017-D6 RINS decreased to 41.0 cents. Brazil returned to an export position in April. The vote on imposing a tariff on U.S. ethanol imports was postponed until June. European ethanol values increased to a six-week high.

Long Term Models Remain Wet

The recently concluded California drought began on December 27, 2011 but it wasn't until August 13, 2013 when the category "extreme drought" made its debut in the southwestern part of the state. In 2014, 2015, and 2016, major portions of the so-called Golden State were covered by both extreme and exceptional drought. With this past winter's heavy rains, just over 5 years of drought ended with an official gubernatorial declaration on April 4, 2017. Unless you're a vegetable/fruit producer or consumer, that stretch of intense drought probably didn't mean much. However, given the predominant west to east pattern flow, we started to wonder aloud a few months ago what the impact of a non-drought stricken California would have on Midwest weather this summer.

Tighter Seasonal NOx Limits Begin in the East as Other Rules are Targeted

A number of rules finalized under the Obama EPA are being targeted under the Trump administration. The tighter CSAPR Update rule NOx limits associated with 2008 Ozone NAAQS attainment have managed to survive and are in effect as of May 1st for units across much of the Eastern half of the country. Seasonal NOx allowance prices have risen in response. With court challenges outstanding, questions remain over whether EPA will defend the CSAPR Update rule. EPA has delayed litigation on the stricter 2015 Ozone NAAQS. Pressure to reduce cross-state emissions continues to come from petitions under the “good neighbor” provisions of the Clean Air Act.

B.C. Voters Decide - Almost

Last week, British Columbia voters went to the polls but the outcome remains uncertain. Prior to the inclusion of absentee ballots and the likely call for a recount in some tight ridings, the Liberals have captured 43 seats, the NDP 41 and the Greens, holding the balance of power, with 3 seats. Several ridings had very slim margins of victory and still await absentee ballots and possible calls for recounts leaving the final outcome in doubt between a slight Liberal majority or a minority government decided by Green Party support. The closest vote was in the riding of Courtenay-Comox where the NDP hold a nine-vote lead in a riding with a large military base that should have many absentee ballots from soldiers stationed out of the province. The Liberal candidate in the riding is the former base commander which suggests this riding could swing to the Liberals and produce a Liberal majority.

Global Equities Remain at or Near Record Highs

The broad U.S. market flirted at or set new record highs but was lower week-on-week. Technology and energy were the best performing sectors, while retailing was the weakest. Internationally, many of the emerging market sectors posted strong gains. World equity capitalization moved to a new record high this past week, something that had eluded it since the mid-July 2015 peak.

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.