PIRA: China racing to accommodate new LNG supply

NYC-based PIRA Energy Group believes that the clock is ticking on the next large tranches of LNG supply coming out of Australia.

PIRA said in its report that Chinese buyers will be battling time to fire up new import capacity to accommodate the expected volumes, all of which are under long-term take or pay contracts with limited destination flexibility under the current structures.

In the follow-up to the previous week’s bullish surprise, the EIA reported a 76 BCF build, a benign result as U.S. market expectations were clustered in the 72-76 BCF range. The report provided no affirmation of the bullish supply/demand backdrop inferred from the previous week’s injection. As a result, NYMEX prices were pressured moments after the release, with the nearby June contract falling a dime from its high to end the day at ~$2.73, PIRA said.

Some interesting structural changes in how gas flows throughout Europe are becoming visible, according to PIRA. These changes will have a significant impact on the relative price relationship among the various spot benchmarks in Europe. All of these spot benchmarks will continue to trade below the oil-indexed ceiling, but the more aggressive push (thanks to the buyers) of Russian gas into Germany and the Netherlands via Nord Stream is making the NCG/TTF relationship the most important one to watch.

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Image: Santos GLNG