NYC-based PIRA Energy Group believes that LNG import terminals are being constructed to offer security, not better prices.
In the U.S., market focused on production and heating degree days while in Europe, Ukraine deal leaves markets with weather to hold up shaky fundamentals.
Previous conflicts of both a political and commercial nature are returning to prominence among the (soon to be) formerly Russian pipeline-dependent buyers of gas in Europe. Large scale and costly LNG import infrastructure projects are just now being realized after years of deliberations and planning, but their long-term sustainable use will remain in question given Russia’s pricing power in these trades.
The 87 BCF injection revealed in last week’s EIA update almost nailed the consensus average. However, comparisons to last year’s 45 BCF build, and the five-year average of 59 BCF certainly underscored looser fundamentals — tied to both weather and robust U.S. gas supply. These dynamics will likely delay the start of the 2014-2015 withdrawal season by at least a few more weeks.
The supply/demand fundamentals for gas in Europe strongly suggest establishing a shorter position in the spot gas market. The forward curve has certainly expressed this view for some time for winter contracts, but the forward curve is a side show when compared to the trading liquidity in the prompt. With storage withdrawal season unofficially underway in November and an extremely warm October providing no gas demand support from weather, additional downward pressure on day ahead and one month forward prices will emerge.
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Press Release; Image: Polskie LNG