NYC-based PIRA Energy Group believes that LNG supply length feeds niche North American demand. In the U.S., stout injection is above consensus, with triple-digit builds are expected ahead. In Europe, Dutch role in Europe changes as production declines and imports rise.
Mexico and Puerto Rico have seen very strong LNG demand growth this year, but it does beg the question of whether the growth came as a result of stronger demand or simply that the LNG had nowhere else to go at a higher netback. The truth lies somewhere in between, as Mexican gas demand is capable of growing quickly, but only if the gas is priced at a bearable level. U.S. prices provide such a level, but the same cannot always be said for LNG imports, particularly when the parties involved have a better netback option elsewhere and a right to divert the cargo.
An outsized 79 BCF storage injection was reported in last week’s EIA update. The build handily bested the market consensus in the mid-70s and was also ~3 BCF/D above both the year-ago and five-year average. Stout injections continued in the Consuming East, but the Producing Region jumped to 10 BCF after last week’s 5 BCF seasonal low.
It is hard to build a scenario where Dutch demand growth is strong enough to lift Europe as a whole, but it is worth considering the possibility of TTF being stronger than other benchmarks in the region. Dutch gas production is down by a sizable 43-mmcm/d year-on-year through August, and while much of this cut was logically associated with a warmer than normal first quarter, the truth is that year-on-year cuts in production have actually been even stronger since April. Additional cuts in peak gas output during for the upcoming winter cannot be assumed this year because production was reduced so sharply last year.
Press Release, September 11, 2014