PIRA: High LNG Prices and Weaker Regional Currencies in Asia Limiting Prompt Cargo Demand

PIRA Energy Group said it  believes that high LNG prices and several weaker regional currencies in Asia are limiting prompt cargo demand. In the U.S., the EIA’s belated report on end-year 2011 proved U.S. gas reserves indicated reserves increased for the thirteenth consecutive year. In Europe, The gas market is set to enter the fourth quarter with its lowest stock levels since 2007.

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

The Nuanced Relationship between New LNG Import Capacity and LNG Demand

One of the key questions emerging in the coming months and the year ahead will be whether new LNG import capacity around the world will translate into more competition for LNG supply. PIRA does not necessarily see this type of cargo-on-cargo competition emerging from the new terminals, as the role of spot LNG in the winter market is narrowing due to the substantial increase in contract volume secured by buyers, particularly in Asia. High LNG prices and several weaker regional currencies in Asia are limiting prompt cargo demand with buyers opting for the sideline.

2011 Proved Gas Reserve Tally to Mark Temporary Inflection Point

The EIA’s belated report on end-year 2011 proved U.S. gas reserves indicated reserves increased for the thirteenth consecutive year. Sizeable shale gas reserves, which have expanded five-fold since 2007, were behind the year-on-year growth. The estimate is likely to mark a temporary inflection point, however, as weak prices resulted in significant downward revisions to proved reserves by many producers in 2012.

Europe’s Fluid Gas Supply

The gas market is set to enter the fourth quarter with its lowest stock levels since 2007. The lower stock levels can in some ways be justified by weaker underlying gas demand, even though that weakness is not coming from weather-sensitive sources that typically use the gas. But the most important component of the gas balance continues to be the flexibility of key gas suppliers to adjust pipeline volumes in support of spot prices relative to contract levels and the willingness – or even aggressiveness – of gas buyers to divert LNG cargos to other regions at a profit rather than commit these volumes to seasonal storage in Europe.

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LNG World News Staff, September 25, 2013