PIRA Energy: Peruvian LNG Looks to Sidestep Contractual Commitments and Seek Higher Value

PIRA Energy Group reports that Peruvian LNG looks to sidestep contractual commitments and seek higher value. In the U.S., the narrow NYMEX summer/winter spread, rising year-on-year U.S. production have reduced buying interest. In Europe, supply risk will build into winter.

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

Despite having shipped out only two cargos this month due to maintenance-related reductions, Peru LNG has increased output year-to-date through July and looks to be on target for growth for the balance of this year. The biggest surprise in delivery points is that considerable Peruvian volumes are still regularly appearing in Spain despite the large price variance between Europe and Asia, which more than covers the higher shipping cost to Asia vs. Spanish terminals in the Mediterranean.

Northeast Basis Feeling Marcellus Impact

The narrow NYMEX summer/winter spread, rising year-on-year U.S. production, thanks to growth in the Northeast, and a much cooler temperature forecast for August, have reduced buying interest. Appalachia prices, and thus basis, are under acute pressure from a surge in Marcellus production, now increasingly tied to wet gas. While the effects of such gains are being diluted by net losses elsewhere, the expanding access to this supply threatens interest in storage capacity — not just in the Consuming East, but the Producing Region and eastern Canada as well.

Supply Risk Will Build Into Winter

Norwegian maintenance or not, supply risk remains minimal in August, as seasonal gas demand reaches its annual low point, but the outlook for the upcoming quarters remains fraught with the possibility of temporary price spikes. While the working storage deficit (versus the five-year average and 2012) in Europe is shrinking, the deficit still remains quite large, with the holes most gaping in France and Germany. As for upside price risk, French balances remain the biggest concern.