PIRA Energy: Atlantic Basin LNG Supply Outlook Weakens

NYC-based PIRA Energy Group believes that lower European contract gas prices will not stimulate demand, but will offer buyers an opportunity. In the U.S., gas storage came in well above the market’s expectation. The Atlantic Basin LNG supply outlook may be weaker, but Asian LNG spot prices contradict the market’s alarm.

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

Lower Contract Prices Will Not Stimulate Demand, But Will Offer Buyers an Opportunity

Lower contract prices will not drop enough to stimulate any type of demand recovery, but they will offer an opportunity for buyers to meet contractual obligations in full for the first time in many years, particularly if spot prices remain on par with oil-indexed levels. Herein lies the danger to buyers of the current market balance: the outlook for demand is indisputably atrocious once the weather is stripped out, but it is within the power of Europe’s main suppliers to place a higher floor under spot prices by not only taking seasonal pipeline supply off the market, but also by actively engaging in diverting LNG cargos to other regions.

U.S. Gas Storage Comes in Well Above the Markets Expectation

The EIA delivered a whopper of a surprise in its weekly U.S. gas storage update. The storage withdrawal came in well above what the consensus had expected and handily topped even the “high ballers” within a relatively tight range of estimates. The bullish surprise effectively closed the books on February gas storage, revealing end-month stocks that were markedly lower than last year. Going forward, March stock draws are expected to be sharply higher year-on-year largely due to unusually mild year-ago temperatures, nearly doubling the storage deficit BCF by end-month.

Atlantic Basin Supply Outlook Weakens, But Spot Prices Contradict the Market’s Alarm

The supply outlook from the Atlantic Basin may be looking weaker, but Asia weighted average January spot prices belie the sense of alarm that has been repeatedly touted in the market. January spot prices, not including India, fell under contracted prices for the first time in 15 months, indicating that either supplies have not been quite so constrained or that key Asian buyers are getting better at negotiating good deals. Weakness in European LNG demand should not be underplayed as a key factor in adding to the Asian supply pool.

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LNG World News Staff, March 13, 2013