PIRA: European Spot Gas Prices Dropping

PIRA Energy Group reports that spot gas prices in Europe are going down. In the U.S., regional price risks rise due to hefty hole left in N.A. storage. In Europe, to prevent the price of spot gas from falling any further, the removal of additional supply is going to be needed.

On the heels of high spot prices scaring away buyers in Asia comes the second quarter, where low spot prices are scaring away sellers from marketing to Europe. Spot gas prices in Europe are dropping like a stone, which provides additional incentives for Europe’s LNG buyers to divert cargos in the months to come. PIRA has lowered its outlook for European LNG imports over the next two quarters and may have to lower them further. These changes in the European landscape will add additional supply to the global LNG balances and offer something of an offset to the maintenance closures during the second quarter.

Regional Price Risks Rise due to Hefty Hole Left in N.A. Storage

The N.A. market has made it through the 2013-2014 heating season without firm curtailments. More important, with heating loads now in seasonal decline and scarcity risks over, regional basis is beginning to normalize. Yet, without year-on-year losses in the power sector, storage refills face headwinds. Indeed, while segments of the Consuming East are well positioned to refill storage via access to still growing local production, bottlenecks that restrict net exports to the rest of the region and elsewhere in the U.S. would tighten gas balances and thus yield upward price pressures this summer.

Removal of Additional Supply Might Be Needed

If European gas suppliers want to prevent the price of spot gas from falling any further, the removal of additional supply is going to be needed. More diversions of LNG will occur, but it will not be enough, so supply decreases will have to be broader based. Supply cuts thus far have come almost exclusively from Russia and the Netherlands. PIRA expects more aggressive decreases from both. Dutch production is more exposed to weaker spot prices than Russian production, so it is likely to offer a greater response in the weeks ahead. Russian gas production is already down significantly below what is normal for this time of year, but we have not yet seen a corresponding decrease in exports.