PIRA: Seasonal Demand Losses and More Contract Flows Depress Spot Prices

PIRA Energy Group reports that seasonal demand losses and more contract flows depress spot prices. In the U.S., colossal storage deficits will make rebuilding storage far more difficult than any other time in the last decade. In Europe, competitiveness of gas in power sector is still limited. 

Seasonal Demand Losses and More Contract Flows Depress Spot Prices

Imports will remain well above contract levels in Asia and South America, and as spot prices continue to spiral down, opportunities will emerge for more price sensitive buyers to begin or continue buying above contract levels. Seasonal gas demand is at its low point in Japan and Korea, which is creating a lack of buying urgency for the months ahead in Asia. In contrast, South American buying is going into overdrive on an extended drought in Brazil.

The Tremendous Challenge of Rebuilding Storage

Colossal storage deficits will make rebuilding storage far more difficult than any other time in the last decade. This month’s year-on-year refills have been much slower than PIRA’s earlier expectations, despite normal weather.

Transportation constraints have diminished the odds of a faster-than-forecast Marcellus/Utica shale gas expansion, and imports from Canada have become exposed to greater downside risks. Gas-fired electric generation is unlikely to incur losses that would adequately accelerate restocking ahead of next winter without higher prices. Along with above-trend industrial demand growth, these issues highlight the tremendous challenge of reaching a “tolerable” October exit storage position.

Competitiveness of Gas in Power Sector Still Limited

With spot gas prices falling below 50p/th, the issue of how much gas-fired capacity is currently being operated across the European power sector is becoming more relevant. While the role of gas across Europe has generally diminished and is now residual, pockets of gas-fired generation across several markets still remain significant according to an analysis provided by PIRA’s European Electricity Service.

Egyptian Industrial Gas Users to Participate in Gas Price Reforms

The Egyptian Ministry of Commerce, Industry, and Investment has stated its intent to increase energy prices for the industrial sector from next July, the ministry plans to organize a meeting with leaders in the sector to consult with them about how the liberalization measures and energy prices will affect them.

Japanese Imports Hit Their Limit

Japan set an LNG import record for the fiscal year ending in March, but barely. The figures highlight that the country is more or less at peak for additional gas consumption and will need to back out spot volumes in order to make room for new PNG (a lot) and Australian (a little) contract volumes in the second half of 2014. Long-term PNG buyers include Sinopec, Osaka Gas, Tepco, and CPC Taiwan, but it is the Japanese buyers that are the most significant to the current tapestry of the spot market.