PIRA: new volumes to overshoot new LNG supply deals

NYC-based PIRA Energy Group reports that sizable volumes of new production capacity will be coming online in the next 12 months, but the ramp up on contracts tied to this capacity will lag behind by a considerable margin. 

In addition, expiring contracts on existing LNG projects offer additional supply to the trading mix, most notably from Indonesia, PIRA said in its report.

The year-on-year U.S. storage surplus is well on its way to inflate an additional ~100 BCF by end-month. The implications of such a massive year-on-year increase will carry forward given that weekly stock builds ahead increasingly must fall below last year’s record pace. Certainly, these issues will make May Bidweek (concluding next Monday) all the more interesting as a test of whether last month’s price action that dragged the prompt month decidedly lower will be repeated.

In Europe, the approach to storage management and the acquisition of supply are quite different from normal at the beginning of the 2015 injection season. The normal rules and assumption will not apply because of the sizable decrease in oil-indexed prices in the coming months, which are causing all kinds of unique optimization plays.

PIRA foresees Mexican energy policy reforms, coupled with low oil prices, increasing the nation’s dependence on U.S. gas exports. Reforms to stimulate foreign investments were aimed to revitalize domestic oil and gas resource development, as well as upgrade critical infrastructure, but the collapse of oil prices has undercut resource investments and depleted already capital-short PEMEX. By comparison, reforms targeting private infrastructure investments are gaining strong traction, signaling more positive momentum for gas demand, especially gas-fired power generation. Stronger gas demand and stiffer domestic gas production headwinds should boost the call on U.S. exports from 2.0 BCF/D in 2014 to 5.6 BCF/D by 2020.

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Image: BG Group