PIRA Energy: 2Q13 Seasonal Dip in Asian LNG Demand to Cut Into Spot Prices

PIRA Energy Group reports that the recent drop in Asian LNG spot prices confirms PIRA’s belief that the seasonal dip in 2Q13 Asian LNG demand would cut into spot prices. In the U.S., year-on-year gas storage deficits are on track to be significant by the end of March. In Europe, gas demand is above normal in weather-sensitive areas.

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

The recent drop in Asian spot prices confirms PIRA’s view from the last two months that the seasonal dip in second quarter Asian demand would cut into spot prices. However, this dip is only part of the story, with an equal share of the attribution going to the sudden rise in European spot prices due to a winter that seemingly will not end. Combine these two factors and PIRA believes that a shift in LNG volumes back to Europe, the Mideast, and South America and away from Asia will be occurring in the next few months.

Storage Deficits on Track to Be Significant Year-onYear

Storage deficits are on track to be significant year-on-year by end-March. As a result, end-October storage would even fall below those carryouts marred by hurricane impacts in 2005 and 2008, without faster year-on-year builds during the injection season. More realistically, PIRA expects much narrower end-October storage deficits, and that is where higher Henry Hub prices must come into play. The cannibalization of coal-fired electricity generation in 2012 by cheap gas needs to be substantially reversed. But, there are constraints to the reduction of storage deficits including minimal production growth and lower net imports, suggesting that supply will not cause deficit reductions.

Demand above Normal in Weather-Sensitive Areas

PIRA’s 10-day outlook shows demand being consistently and strongly above normal in weather-sensitive areas. The duration of this cold snap has reached a tipping point in the PIRA outlook, where it is not only influencing PIRA’s view of the next month or quarter, but also the balance of the year. Building in the 10-day forecast, which remains exceedingly cold, PIRA’s projection for the effect of weather on demand in March will top the amount above what would otherwise be normal.

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LNG World News Staff, March 27, 2013