PIRA: buying flexibility grows with Japan, Korea import capacity

NYC-based PIRA Energy Group reports that new import capacity in Japan and Korea enhances buying flexibility. 

Report points out that the U.S. market’s lack of direction was highlighted by the NYMEX falloff after hefty build. In Europe, gas year begins with high stocks but even higher risks.

Much attention is focused on China as the key growth market for Asian LNG both in the short and long term, but import capacity is quietly being added in the old growth markets of Japan and Korea as well, adding much needed flexibility and storage capacity for Asia’s two largest buyers, even if the demand growth outlook appears weak for now, stands in the report.

Last week’s EIA update reported a hefty 112 BCF build, which handily bested consensus estimates in the mid-100s. Injections were the fastest since mid-June and the ninth triple-digit build this season. Only the 2001 injection season registered more 100+ BCF weekly refills (10), a feat that next week’s report should easily match.

The report reveals that European spot market enters the fourth quarter at odds with itself; never has political risk had a greater bearing on European gas prices and never have supply/demand fundamentals been this weak, even if power sector use is looking up. Buying into the notion of Russian supply risk has placed at least a 10p/th premium on day ahead and winter prices and probably more. Relieving the market of this angst will not be easy. Pricing history has shown that the absorption of weak fundamentals into spot prices can linger until late into the first quarter no matter how plump working gas storage will be ahead of winter. The entire situation sets off the alarm bells for the likelihood of enhanced price volatility in the winter ahead.

Press Release, October 8, 2014; Image: Tepco