PIRA Energy: Call on LNG Supply to Rise in Months Ahead

PIRA Energy Group believes that the call on LNG supply will begin to rise in the months ahead. In the U.S., October gas storage levels should have headroom to the low and high end. In Europe, a continued string of colder-than-normal weather does not appear to be disappearing and has an influence on gas price.

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

The call on LNG supply will begin to rise in the months ahead. Japan will be buying for its seasonal peak in summer, while other countries will add more moderate weather-related gains as well. PIRA sees LNG balances looser in the third quarter than one year ago, amid signs of weakening spot demand in an Asian market increasingly intent on the signing up of more contracted gas.

October Storage Level Should Have Headroom to Low and High End

PIRA’s Henry Hub price deck ahead of the 2013-14 heating season leads to an end-October storage level with sizable headroom to both the low and high end of PIRA’s “safety zone.” On the surface, stronger gas prices than those reflected by PIRA’s Reference Case that lead to less gas for electricity generation and thus higher pre-winter storage, ceteris paribus, would appear the more likely alternative outcome. Yet, the “contango conundrum” remains a formidable obstacle as summer-winter price spreads are too narrow to incentivize faster storage refills.

No End to HDD Influence on Price

A continued string of colder-than-normal weather does not appear to be disappearing from the European horizon. If anything, PIRA’s 10-day outlook shows it intensifying. Given it is almost June, the impact of this string of weather-related increases in demand, now dating back over 15 months, cannot allow PIRA to assume normal weather in the months ahead until there actually is some normal weather. Throw in the intensified Norwegian maintenance, a lack of urgency by Russia to sell more gas, and a continuation of LNG cargo reloadings out of Europe for other markets and the price support is justified.

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LNG World News Staff, May 30, 2013