PIRA: Europe, LNG market’s storage center or dumping ground

NYC-based PIRA Energy Group believes that Europe’s position in the LNG market in the upcoming months is fast becoming defined as either a storage center or an outright dumping ground.

While prices in Asia have descended rapidly due to either losses in crude oil values or spot LNG quotes, the stickiness of NBP at current levels has made Europe a much more enticing netback for Atlantic Basin LNG suppliers. PIRA believes the key question will be whether high LNG imports by Europe will translate into higher LNG send out or will the import terminals just be used as a temporary home for storage before even larger reloads emerge in the first quarter?

Last week’s EIA update on U.S. storage activity revealed that net draws have indeed begun. Most had expected a draw, but the reported decline easily bested the consensus estimate near 10 BCF. The wide “miss” prompted an initial ~10¢ rally in the nearby contract pushing December to ~$4.50 before selling pressures resulted in a steep ~25¢ pullback. But those losses ultimately uncovered enough buyers to lift the December contract back to its earlier high and also within striking distance of the November 10th high.

Focus on Norwegian production problems seems to be paramount in justifying current gas prices at slightly higher levels. As PIRA has documented over and over again, the supply/demand fundamentals of the European gas market do not support prices at this level, even after factoring in the Norwegian glitch. Even after factoring in the temporary loss of this production capacity – 23-mmcm/d of potential output between Troll and Skarv – Norway is still exporting gas at all time highs for November. Perhaps what the market is saying, by raising day ahead another 3p/th over the past week, is that all time highs for Norwegian exports at this time of year are simply not enough despite record high storage levels and no sign of demand growth before or after adjusting for weather.

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Press Release; Image: Enagas