PIRA: weak LNG demand could force halts in production

NYC-based PIRA Energy Group believes that strategies are emerging for keeping LNG trains operating amid weak seasonal demand. 

It is widely agreed that the LNG market is heading into a soft patch that may persist for some time. Between the relatively casual rate at which China and India are increasing imports and the sizable amount of new LNG supply – large volumes remain un-contracted to end users – scheduled to enter the market in the coming year, it’s looking like a much stronger possibility that some production will have to be shut in, PIRA writes in its report.

In the US, consensus estimates for Thursday’s report calling for a pull of 106-110 BCF proved to be only slightly below the EIA’s reported withdrawal of 111 BCF. The draw widened the inventory surplus to last year by a striking 136 BCF and pushed inventories above the five-year average for the first time since 2014.

In Europe, focus on Dutch gas production has died down considerably in the past week, as year-on-year losses in gas supply from Groningen are actually smaller than the year-on-year increases from Norway. The bigger issues that will continue to dictate price direction in the months ahead will be how Russian gas and LNG imports square off for the injection season to come. At the moment, the year-on-year decreases in Russian exports have been reduced to 161-mmcm/d due to a year-on-year increase in weather-related gas demand. The weather outlook is still slightly warmer than normal, but nothing like last year’s tropic levels.

In Asia, the Korean government will cut the price of gas sourced from LNG supplied by the state-run Korea Gas Corporation, by an average of 10.1% from next month to reflect the recent fall in oil prices, the energy ministry said Sunday. The price cut is the second of its kind in just two months.

Mild weather in western Canada has reduced reliance on storage and bolstered February cross-border flows by ~0.5 BCF/D year-on-year in the process. The western withdrawal for the full month is expected to average 1.3 BCF/D, only about one-third of the year-ago pace. Meanwhile, Canadian gas rig counts have finally given way to year-on-year losses, but momentum in place should still lead to year-on-year western Canadian production growth, and thus higher net exports, through the injection season. The risk of price-induced supply curtailments cannot be discounted.

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Image: BP