PIRA: More Asian Contract Volumes Marginalize Atlantic Basin Spot Trade in Japan

PIRA Energy Group believes that more Asian contract volumes marginalize Atlantic Basin spot trade in Japan. In the U.S., well freeze-offs is weighing on the minds of many market participants. European supply is scaled back in early November.

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

The key factor in displacing some Atlantic Basin (AB) spot cargos to Japan this winter will be neither the tepid demand for power generation nor the incremental flows away from Europe of additional non-contracted volumes from Qatar. It will be the wholesale long-awaited emergence of volumes from Australia’s third liquefaction project, the 5.9 BCM/yr. single-train Pluto project. While Australian LNG exports to Japan have jumped by some 11-mmcm/d through September, spot import volumes by Japan have fallen by 13-mmcm/d, and the implications of this trend going forward for spot suppliers in the distant Atlantic Basin or better placed Qatar are grave.

Well Freeze-offs Is Weighing on the Minds of Many Market Participants

Now that colder weather is upon us, the risk of well freeze-offs is weighing on the minds of many market participants. Water is the biggest culprit when it comes to freeze-offs, but wells that produce gas with a high BTU content (ie. rich gas containing ethane, propane, or other NGLs) pose an additional risk. PIRA’s Reference Case for the 2013-2014 heating season is based on 10-year normal weather assumptions and does not account for any production losses tied to well freeze-offs. However, sustained, below-normal temperatures could impact as much as 2-3 BCF/D of U.S. gas supply for multiple days, or even weeks, depending on the region affected.

European Supply is Scaled Back in Early November

The sharp cutback in Russian production and Norwegian gas exports in early November offers the expectation of strong day ahead price support in the weeks to come, but also less of a reason to worry about peak supply availability in the middle of the winter. In the case of Russia, gas production has decreased down to more traditional levels of 1.8-1.9-bcm/d after an unprecedented surge in October to over 2-bcm/d. It is clearer now that the increase in October to peak winter levels was directly tied to a shortage of working gas storage in Germany, Ukraine, and several other points along the Russian gas corridor.

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LNG World News Staff, November 14, 2013