PIRA Energy: Lower Asian LNG Demand Loosens Balances

PIRA Energy Group reports that LNG balances have loosened up considerably since the end of March. In the U.S., large year-on-year gas storage deficit propels Henry Hub cash prices. In Europe, weather limits risk to the downside of the gas markets.

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

Lower Asian Demand Loosens Balances

After a tight 1Q13 quarter replete with supply disruptions and significant boosts coming from weather-related demand for gas, LNG balances have loosened up considerably since the end of March. Even without the addition of new supply from Algeria and Angola, seasonal demand losses from Asia, combined with more selective spot buying from Europe and South America, has put a significant dent in Asian spot prices. PIRA expects the drop in Asian spot prices to influence a broader swathe of LNG spot deals around the world.

Large Year-on-Year Gas Storage Deficit Propels Henry Hub Cash Prices

The still stubbornly large year-on-year gas storage deficit has propelled Henry Hub (HH) cash prices markedly higher over the last month or so, but a modest reduction in the deficit looks on the horizon by mid-year. However, protracted net U.S. supply declines, coupled with non-Electricity Generation (EG) demand growth, will make reducing storage deficits strictly from gas give-backs to coal EG a difficult task. In this regard, we continue to envision near-term HH gas price risks as upwardly biased.

Weather Limits Risk to the Downside

Even now, the outlook for colder than normal weather persists and is limiting the pace of the downward slide, but the market is unequivocally tilting to the short side with storage deficits being the only real factor to offer bullish support. Temperature deviations from normal have added to demand in the form of colder than normal weather in the winter and warmer than normal weather in the summer. Initial April estimates show incremental demand large enough to justify price support.

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LNG World News Staff, May 2, 2013