PIRA: long-term LNG contract rules will need revision

NYC-based PIRA Energy Group believes that rules will be rewritten on long-term LNG contracts.

To sign or not to sign, that is the question for 2015, a year in which many long-term contracts need to be signed in order to finance future LNG supply. For sellers, options are limited, although more quantitative easing and low-risk borrowing keep more players in the game. For buyers, options are becoming limitless. The distancing of these two market views is creating more uncertainty in the long-term balances, although the next one to three years looks pretty clear, says PIRA in its report.

In the US, last week’s reported 94 BCF withdrawal marked yet another 10+ BCF “miss” versus a consensus of 108-110 BCF. This report appears to confirm last week’s looser balances. More specifically, both figures imply a supply/demand backdrop that is ~1.5 BCF/D looser than expectations, which in turn adds to the bearish inventory trajectory for end-March.

Amid lower prices and a more competitive position in the fuels market, PIRA has increased its European gas demand growth projection for 2015. The increases are led by a modest recovery in industrial use and a more competitive position for gas relative to coal. Add in higher stock injections and it is a relatively positive story on the demand side for the first time since 2010. However, the major problem for spot sellers is that contract gas nominations by Russian buyers are going to grow and grow as the second and third quarters pass. In the short term, Asian gas demand crashes in the second quarter relative to the rest of the year on an annual basis, so LNG supplies will be taking a much more aggressively competitive role in the European market, believes PIRA.

Sohar-based industries, which are using natural gas as energy, have asked the Omani government to consider the recent doubling of natural gas price in a phased manner over a five-year period. Oman government has doubled natural gas price with effect from this month and an annual increase of 3% thereafter. Fifteen major consumers of natural gas in Sohar’s industrial area are affected by the recent increase in natural gas price.

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Image: Tepco

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