Pira: Asian LNG Spot Price Premium Working Its Way Back to Europe

PIRA Energy Group believes that Asian LNG spot price premium is working its way back to Europe. In the U.S., colder year-on-year weather important in keeping storage draws in line with last year. Will Europe pull on its contracted LNG to balance weather-sensitive demand growth?

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

A tighter LNG balance is prompting Asian buyers to pull in more and more LNG cargos from distant sources. Asian buyers are now at a time of the year when regional supplies, including incremental volumes from Australia’s Pluto facility, are not large enough to meet prompt consumption. PIRA expects import prices by all major sources to show spot price premiums above weighted average contract gas prices.

Colder Year-on-Year Weather Important in Keeping Storage Draws in Line with Last Year

Colder year-on-year weather has played a big role in keeping storage draws in line with last year, but the absence of Henry Hub price premiums that had been in place since 4Q12 has been a factor as well. Going forward, the onus will be back on colder weather for faster storage draws, as last December’s mild weather will provide only a temporary cushion. However, the buildup of production remains the overriding issue behind PIRA’s more bearish outlook for 2014 HH prices.

Will Europe Pull on Its Contracted LNG to Balance Weather-Sensitive Demand Growth?

Two issues are driving the bullish outlook in day – ahead prices: weather-sensitive demand in Europe and supply-constrained spot price increases in Asia. PIRA’s 10-day daily gas demand outlook for Europe implies a more bullish outlook for day-ahead prices. A significant uptick in supply is going to be required to meet this immediate demand growth, and the fluidity with which this happens will determine the extent of future day-ahead price increases.

[mappress]
LNG World News Staff, November 27, 2013