PIRA: Market Attention is Riveted on Asia

PIRA Energy Group believes that market attention is riveted on Asia. In the U.S., supply cushion for the region’s gas market for many years. In Europe, justified bullish run in spot and winter prices will be taking a break.

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

Market attention is riveted on Asia for January/ February spot cargo placement. The spot prices reflect the high end of the generally tight nature of LNG supply/demand balances. Tightness will persist well into 2014 and be particularly acute during winter months, especially when multiple LNG consuming regions are showing below normal temperatures. A shift in European weather-related demand to warmer than normal has eased up the call on LNG there, but finding a spot cargo in the Atlantic Basin that is not stamped for transport to Asia remains no easy task.

Supply Cushion for the Region’s Gas Market for Many Years

New England LNG send-outs have provided an important supply cushion for the region’s gas market for many years. But with regional gas supply declines negatively impacting gas-fired electric generation in 2012, the NE-ISO made arrangements to ensure that ~4.2 million barrels of oil will be available to backstop electric generation this winter. While this plan lowers the odds of electricity shortages during cold snaps, it does reinforce the prospect of gas prices reaching oil-equivalent levels (and beyond) at times.

Justified Bullish Run in Spot and Winter Prices Will Be Taking a Break

The rapid change in the weather outlook over the past few days implies that the recent and justified bullish run in spot and winter prices will be taking a break. Just how short of long this break will be depends largely on two factors: weather sensitive gas demand changes and LNG supply. PIRA does not expect a massive sell off in day-ahead prices because supply remains highly constrained and easy to remove from the market, but the need to maintain the kind of length necessary over the past 30 days has been severely reduced. PIRA’s 10-day gas demand outlook suggests a substantial shift to warmer than normal temperatures.

[mappress]
LNG World News Staff, December 19, 2013