PIRA Energy: New Asian Import Capacity Does Not Necessarily Translate into New LNG Demand

PIRA Energy Group believes that new Asian import capacity does not necessarily translate into new LNG demand. In the U.S., compared to the EIA’s Short-Term Energy Outlook, PIRA foresees a sharper decline in electric generation sector gas demand during the upcoming heating season. In Europe, the moderately bearish mood emerging in the broader European spot market is coming from a decreasing concern about the supply situation going forward.

Specifically, PIRA’s analysis of natural gas market fundamentals has revealed the following:

New Asian Import Capacity Does Not Necessarily Translate into New LNG Demand

New regasification terminal capacity additions between now and the end of 4Q will add up to 90-mmcm/d of import potential over 4Q of last year. Tepid demand from emerging Asia, where most of this capacity is being added in the coming months, will result in some of this capacity going unused, particularly in India. Underutilization is also expected for the balance of the year in China once its three planned terminals for this year begin ramping up.

Heating Season Outlook: 2013-2014

Compared to the EIA’s Short-Term Energy Outlook, PIRA foresees a sharper decline in electric generation sector gas demand during the upcoming November-13 through March-14 heating season. Our outlook also sees U.S. dry gas production rising modestly faster than the EIA, but lower expected imports keep our total supply estimate below EIA’s. In sum, our steeper year-on-year demand decrease but smaller supply increase leads to about the same storage withdrawal during the heating season.

European Supply Concerns Ease Despite Maintenance

The moderately bearish mood emerging in the broader European spot market is coming from a decreasing concern about the supply situation going forward. Starting in September and October, all major pipeline sources will begin to ramp up seasonal supply in line with weather-related gains. The ramp up will allow storage injectors to keep filling stocks at above normal levels, helped along by the fact that oil-indexed (contract) supply levels will remain high as long as winter spot prices are trading at or above contract gas levels.