PIRA Energy: LNG Supply Shifts to Asia

PIRA Energy Group reported that LNG supply shifts to Asia. At end-May, eastern Canada’s storage deficit remained a whopping 40% of the market’s pre-winter peak. In Europe, there is a strategy shift for third Quarter buying.

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

More LNG supply will shift to Asia in the second half of the year. New volumes from Angola and Algeria will push more Mideast volumes into Asia, with Qatar emerging with more uncontracted volumes and a more liberal policy on f.o.b. spot sales. PIRA also expects an increase in Nigerian flows to Asia, as they are attractively priced assuming another disruption does not emerge.

Canadian Storage Deficits: A Double Whammy?

At end-May, eastern Canada’s storage deficit remained a whopping 40% of the market’s pre-winter peak, but eastern Canada’s new access to Marcellus gas could lead to a reduced heating season reliance on storage. Eliminating eastern and western Canadian end-October storage deficits would serve to increase exports to the U.S. from June through October. Conversely, the “double whammy” of eastern and western Canadian storage deficits remaining sizable throughout the injection season would erase most export deficits, thereby minimizing the bullish gas price impact of Canadian storage deficits.

Strategy Shift for Third Quarter Buying

A key question for spot markets will be whether higher contract gas nominations will lead to lower spot market nominations or will both gas sources be bid up in the third quarter. It could also be argued that spot market strength in the third quarter will come as a result of weakness in contract gas nominations in the second. Obviously, many permutations of the spot/contract mix are possible over the next 120 days and despite the weak demand outlook, more and more of the risk on the forward curve moves to the upside.