PIRA Energy: Winter Faces LNG Supply Risk

PIRA Energy Group believes that the winter faces LNG supply risk. In the U.S., gas production from Marcellus as well as portions of Utica was significantly above June 2012. In Europe, Norway has slightly boosted its estimated supply loss in the first 10 days of August.

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

The central issue concerning buyers will be the three levels at which to weigh supply risk versus realistic expectations of supply availability. The first level is the erratic risk of supply from the Nigeria’s, Yemen’s, and Norway’s of the world; the second level is the timing and consistency of new supply from Angola and Algeria; and the third level is whether or not European reloadings will persist through peak winter demand.

Marcellus/Utica Lifting Wet Gas Production

As of June, pipeline flows covering Pennsylvania and parts of West Virginia indicated that gas production from Marcellus, as well as portions of Utica were significantly above June 2012. More important, we expect similar growth to continue as rig efficiency gains and further reductions in the uncompleted well inventory more than offset the decline in the region’s combined gas and oil rig drilling intensity measure.

Norwegian Maintenance Intensifies

Norway has slightly boosted its estimated supply loss in the first 10 days of August, although the vast majority of Norwegian decreases will occur in the second half of the month. The loss in supply will be over 20-mmcm/d month-on-month. PIRA’s current August production estimate is in line with official estimates by the Norwegian Petroleum Directorate.

2014 Early-Bird North American Natural Gas Outlook

PIRA’s 2013-2014 heating season and 2014 injection season gas balances showcase neither bullish nor bearish storage at end-March or end-October. Inventory levels also depend on PIRA’s Reference Case prices, which generally pose downside demand risks. They are high enough to exacerbate the challenges facing gas-fired electricity generation that include weak coal prices and tepid weather-adjusted electricity load growth. However, the price outlook also reinforces matching bullish downside risks for production in the U.S. and Canada.