PIRA Energy: Spot LNG Prices Up, But Volumes Are Thin

PIRA Energy Group reported that spot LNG prices up, but volumes are thin. In the U.S., there is a rapid reduction in the storage deficit. In Europe, there is a revolving door of supply pushing out more LNG and pulling in more pipeline gas.

Korea’s most recent import data, coupled with June Kogas sales figures, go a long way towards quantifying just how much unexpected nuclear shortfalls have led to the pumping up of gas demand in a period when gas demand is historically very weak. Coupled with the ongoing issues in Japan and recent unexpected nuclear shortfalls in Taiwan, nuclear power losses in Asia have been a major contribution to current strength in Asian gas markets, beyond the growth economies of India and China.

Storage Deficit Reduction Slowdown

The dynamics that have taken hold at the onset to the peak months of the cooling season have proved too much to support $4/MMBtu gas prices at Henry Hub (HH). When combined with material production gains in April/May, storage refills have been able to surpass the year-ago figures and allow for a rapid reduction in the storage deficit. Despite our anticipation of more storage deficit reductions in the final two months of the injection season, the pace of reductions should be much slower and in line with the outlook that envisions a progressive lessening of the bearish market sentiment in place since prices peaked in May.

See the Egress! Europe’s Gas Supply Circus

With the exception of Algerian flows to Italy, more and more pipeline gas is pouring into the European market at the same time that LNG cargos are being sent from European import terminals to destinations all over the world. While this revolving door of supply is odd enough on its own, what makes it even odder is that Europe’s storage deficit remains sizable only 3.5 months ahead of injection season. Why exactly Europe would be reloading and diverting LNG cargos when faced with a storage deficit is worthy of additional focus.