PIRA: Tighter LNG Supply Outlook Extends Further into 2014

NYC-based PIRA Energy Group believes that the tighter LNG supply outlook extends further into 2014. Price volatility realized in the western U.S. markets last month shifted east along with the arctic-air intrusions in January. In Europe, gas fundamentals take a significantly bearish turn.

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

BG’s recent announcement of force majeure on its Egyptian volumes comes as no surprise. Overall exports from Egypt have been gradually dwindling since the early days of regional political upheaval. But the specification that BG’s coalseam LNG project in Australia is now set for 4Q of this year from the broader 2H 2014 target date indicates that the market will remain tight through next winter, particularly as China has a vast new tranche of import capacity to fill and Japan is boosting gas-fired generation capacity with dim expectations for significant nuclear restarts any time soon.

North American Gas Regional Monthly

Price volatility realized in the western U.S. markets last month shifted east along with the arctic-air intrusions in January. With the Midwest and Northeast facing the brunt of the polar vortex, the resultant demand impact in these R/C-heavy markets (as well as heating gains in the South) was powerful enough to yield material support for Henry Hub — unlike a month ago. Stock levels likely to be plumbed in the East should be raising alarms at LDCs, especially with weather forecasts carrying the cold weather into mid-February. Consuming East stocks approaching critically low levels next month would likely exert even greater upward pressure on Henry Hub than seen so far.

Gas Fundamentals Take a Significantly Bearish Turn

A significant warming trend is taking the edge off of gas demand in early February, which is normally the highest demand period of the year. Temperatures are moving higher, power sector gas demand is moving lower, and industrial gas demand is moving nowhere at best and overseas at worst. In the months to come, supply cuts will have to play a larger role in balancing the market if gas producers hope to keep spot prices within close range of oil-indexed prices. Unquestionably, the starkest change in the market that reflects a more bearish tone has occurred in working gas storage.

Press Release, February 6, 2014: Image: BG