PIRA: Tightening LNG Market Is in Need of New Supply

January 3, 2014

PIRA Energy Group said it believes that a tightening LNG market is in need of new supply. A backwardated forward price curve will provide an incentive to continue faster year-on-year stock draws, and Canadian production is expected to trend higher. The focus of the European gas market will continue to shift from what supply can be provided to what supply can be taken away.

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

Tightening LNG Market Is in Need of New Supply

A tightening LNG market is in need of some new supply, but such supply will be scant in the year to come. Over the past 12 months, 11 new LNG import terminals have opened up around the world and while import capacity does not equal full utilization, many of these buyers are either starting to draw on previously signed contracts or the spot market, thereby tightening the pool of available supply from key swing producers such as Qatar or Nigeria. As for new supply, PIRA is showing three projects offering new LNG production in 2014.

More Canadian Supply to U.S. Ahead

The new year looks ready to begin with a triple-digit Canadian year-on-year storage shortfall. Not long ago, such a deficit would have evoked future bullish price optimism in western Canada, but no longer. A backwardated (i.e. downward sloping) forward price curve will provide an incentive to continue faster year-on-year stock draws, and Canadian production is expected to trend higher.

Focus Shifts to What Supply Can Be Taken Away

The focus of the European gas market will continue to shift from what supply can be provided to what supply can be taken away. The outlook for weather-sensitive gas demand has drastically shifted down from colder than normal in the first half of December to warmer than normal levels since then. Supply will need to be pulled off the market if spot prices expect to be supported at current levels. Additional losses in power sector gas demand are also occurring, due to a higher level of renewables and hydro output. Germany set a new renewables output record (as % of total demand) in late December, while Norwegian hydro levels have increased and added power supply to Continental markets.

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LNG World News Staff, January 03, 2014