PIRA: depressed oil market to push LNG prices downwards

NYC-based PIRA Energy Group believes that a depressed oil market will be pushing down prices for both spot and contract LNG.

PIRA notes that, in the U.S., last week’s net build caused by far the largest single week reduction of the year-on-year deficit since the start of the injection season. In Europe, total Norwegian gas exports are running extremely high for this time of year.

PIRA finds that a depressed oil market will be pushing down prices for both spot and contract LNG. As oil prices fall, it will be important to note the price at which demand growth begins to rise, if it rises at all. The central question becomes whether or not it is a myth or reality that a pool of buyers exists that are price sensitive and have been lying dormant, or whether broader macroeconomic and contractual issues dictate more of the swing. For now, the Asian market is faced with relatively high stocks, and buyers continue to receive multiple offers for either spot volumes or topped-up contract levels.

Last week’s EIA reported 91 BCF refill to Lower 48 storage left only one day remaining in the official 2014 injection season and brought working gas inventories to 3,571 BCF. Not long ago, such an end-October carryout seemed almost out of reach given the lowest end-March level in more than a decade. A full 8 BCF/D (56 BCF) higher year-on-year, last week’s net build caused by far the largest single week reduction of the year-on-year deficit since the start of the injection season.

PIRA also reports that total Norwegian gas exports are running extremely high for this time of year at over 320 mmcm/d,. The 40-mmcm/d year-on-year increase is flowing almost exclusively into the German system. The gas demand increase is not coming from Germany, where temperatures are warmer than normal and PIRA’s 10-day outlook for weather-sensitive use shows a 32-mmcm/d loss in gas demand over this period. Part of the reason for this Norwegian jump is tied to the new 25-mmcm/d flow of gas from Slovakia to Ukraine via the new Budince link, which is pulling more gas out of the German system toward the southeast flow through the Czech Republic.

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