PIRA: Tensions Surrounding Crimea Have Very Little to Do with LNG Market Directly

PIRA Energy Group believes that tensions surrounding the changing status of Crimea have very little to do with the LNG market directly. In the U.S., there was a modest storage draw for the reference week. In Europe, weather-related losses in March are looking sizable once again.

Tensions surrounding the changing status of Crimea have very little to do with the LNG market directly. While a threat of a cut in gas supplies could emerge from Russia, Ukraine, or the E.U., the reality is that the commercial situation could use a little less gas in the market and that goes for Europe and Asia. From an LNG perspective, if you are going to have a supply crisis, the second quarter is probably the best time of the year to have it, as Asian gas demand drops to seasonal lows and Europe is showing record amounts of length in its own balances. In reality, a crisis still appears to be a long shot, leading PIRA to the conclusion that further downward pressure on spot prices will emerge over the next 30 days.

Modest Storage Draw for the Reference Week

The EIA’s reported 48 BCF storage draw for the Reference Week was extremely modest relative to the prior 15 weeks’ average of 185 BCF dating back to end-November. The draw also fell short of the year-ago figure for the first time in four weeks. Yet, the immediate selloff in the nearby NYMEX contract of nearly a dime appears more attributable to the draw’s whopping ~10 BCF deficit relative to the market consensus rather than the above comparisons. At settle, the contract finished at ~$4.37, down ~12¢ day-on-day.

Weather-Related Losses in March Are Looking Sizable Once Again

Whether measured versus normal or versus last year, weather-related losses in March are looking sizable once again. PIRA’s initial estimate shows a demand loss of 150 mmcm/d versus normal and 320 mmcm/d versus last year. Since the beginning of the Gas Year on Oct. 1, weather-related losses versus normal have occurred in five of the last six months and total 15.5 bcm. This cumulative loss of gas demand over this period quickly wiped out the storage deficit that existed ahead of winter. Entering the spring the storage situation is drastically different. PIRA estimates that stock levels will enter the second quarter roughly 10 bcm above the five-year average and a staggering 17 bcm above last year.