PIRA: China Shakes Up Its Buying

PIRA Energy Groups Weekly Recap for the Week Ending June 1st 2014

NYC-based PIRA Energy Group reports that China shakes up its buying; finding patterns proves elusive. In the U.S., another triple-digit injection stymies futures gains. In Europe, storage issues weaken outlook for third quarter.

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

Part of the general aversion to incremental spot buying among China’s northern-based facilities outside of the winter demand peak has been the sheer volume of non-contracted incremental volumes from Qatar, the major contract supplier that had recently supplanted pure spot volumes from other suppliers. While other spot volumes played some part in compensating for lower Qatari volumes, the fact remains that those high-priced Qatari volumes were shifted toward much lower-priced European markets last month, which is why plant maintenance in Qatar cannot entirely explain the fall in Chinese sales. The other factor in the weak April showing is the structured, disciplined nature of Chinese buying, which still exists even with 10 import facilities and two dedicated state buyers now in play. A third state buyer, Sinopec, will commission its Qingdao terminal later in the year.

Another Triple-Digit Injection Stymies Futures Gains

A stout 114 BCF was injected into storage during the Reference Week, according to last week’s EIA update. Although ~26 BCF larger than the year-ago injection, the build was only slightly above expectations near 110 BCF. In its newly minted role as the nearby contract, July futures initially dipped ~10¢ to the low $4.50s before rebounding above pre-release levels. It settled at $4.56, down day-on-day by 6¢.

Storage Issues Weaken Outlook for Third Quarter

Storage levels are now entering an area where third quarter buying will have to be reduced. Buyers have been bargain hunting up until now, but they are reaching a point where placement of the gas is becoming an issue. PIRA is building in lower storage injections in 3Q and lower seasonal gas demand is a certainty. The only thing preventing lower prices from emerging will be a reduction in gas supply to the market by key producers. Where these cuts come from is not entirely clear given current output plans. Counting on additional cuts in LNG imports to balance the market in the third quarter may not be a wise assumption. Demand may be picking up a bit, but the volumes will not be anywhere near significant enough to support spot prices in a meaningful way.

[mappress]

Press Release, June 5, 2014