PIRA: European LNG spot price collapse not an option
NYC-based PIRA Energy Group reports that a cold March failed to spark gas price support.
March’s price action in the physical market was relatively tranquil with only minor month-on-month changes. In some ways limited month-on-month cash price declines seem remarkable given the enlarging year-on-year storage surplus that once again showcased the underlying overall U.S. supply imbalance, especially the inadequacy of price-induced demand gains to date — with seasonal heating loads just beginning to diminish rapidly. While inventories are higher year-on-year in all regions, only Consuming Region West storage is above its respective five-year average. Moreover, the region will be under growing pressure to absorb more Rockies and WCSB supply given the displacement of those sources in the MW by additional Appalachia inroads. The backdrop points to broad bearish price and basis implications ahead, PIRA writes in its report.
In Europe a narrower gap will exist between spot (at a discount) and contract gas prices due to newfound support for summer spot prices. Several more bullish fundamental components have been added to the list of reasons why a spot price collapse this summer is less likely to be in the cards. More demand growth, low stocks in Germany and Italy, firm 2Q maintenance in Norway, and a much riskier profile for incremental supply will all play a role in keeping spot prices from too much downside risk. However, PIRA does not believe that spot prices can remain above descending Russian gas prices for a sustainable period without buyers making a massive shift into more Russian gas buying and, as a result, fewer spot purchases.
In Asia, one of the key factors in cascading spot prices for LNG has been the reluctance of China to jump into the fray, no matter how low the price. Chinese LNG imports have not seen much sustained growth over the past 12 months and the growth that has occurred is taking place among long-term contracts that are still well below full utilization. China appeared to staunch the LNG import bleed, with February volumes up by 8-mmcm/d year on year after several consecutive months of losses, but the fact that LNG import growth rates have been so sluggish in recent months is in no small part related to the surge in pipeline imports from Central Asia.