NYC-based PIRA Energy Group believes that LNG demand will drop in 2Q13, but spot prices will not. In the U.S., reduced year-on-year production growth increased supply competition among end-users. In Europe, greater gas supply discipline will be needed this summer.
Specifically, PIRA’s analysis of natural gas market fundamentals has revealed the following:
Demand Drops in 2Q13, Spot Prices Will Not
Despite the huge drop in global demand that occurs every April versus March, a corresponding drop in LNG spot prices looks less and less certain. Delays continue to creep into the starting plans for new supply from Angola, and the timing of new volumes from Algeria are being called into question in the wake of regional conflicts.
Reduced Year-onYear Production Growth Increases Supply Competition Among End-Users
Reduced year-on-year U.S. production growth, along with the ongoing downtrend in net imports, continues to favor increased supply competition among end-users, as far as basis differentials are concerned. This bullish basis backdrop would be lessened by lower gas burn in the power sector. However, the magnitude of such losses hinges on the quantity of supply available for total injections necessary to reach “adequate” end-October levels.
Greater Supply Discipline Needed This Summer
The urgency to reduce supply to the market during the summer will be greater this year because the demand outlook remains exceedingly poor. PIRA believes that producers can be disciplined enough to cut in support of price. However, PIRA does not believe producers are anticipating the extent of the demand slide this summer.
[mappress] LNG World News Staff, February 06, 2013