PIRA: weather role in Asian spot LNG prices formation expands

NYC-based PIRA Energy Group believes that weather’s role expands in Asian spot price formation. In the U.S., the build matches expectations, but the market focuses on coming heat. In Europe, it is difficult to look beyond Ukraine in European spot price outlook.

Spot LNG price mechanisms are just barely starting to click into a higher gear after bottoming out last month. The biggest question in the months ahead will be whether global LNG market fundamentals have changed so significantly in the past year that the coming winter will not be the seasonal replay of last year’s extremely tight balances and record high spot prices. One key part of the answer, the weather factor, is unknowable at this point, but the broader point to understand is that weather itself will continue to play a growing role in spot price movements in Asia due mostly to China’s R/C-weighted growth in the years ahead.

Last week’s EIA update lacked the surprise punch of the last few weeks as the reported 75 BCF injection was only a hair below the market consensus. The build did continue to trim the year-on-year deficit by 10 BCF, but at a much slower pace than last week and recent averages. After a very short-lived 5¢ uptick, the newly-minted October nearby NYMEX contract treaded water at ~$4.05 after the release, before oscillating around that mark near where it ultimately settled.

“A European gas market where Ukraine is not the central focus of attention would be unprecedentedly bearish going into September. Supply/demand fundamentals are extraordinarily weak by almost every measure save a few pockets of growth in power tied to temporary nuclear issues. This world of commercial purity simply does not exist. Dark forces are spreading across the land and the ability to separate what goes on in the gas world from what goes on in the actual world is becoming harder to do. October marks the first month of the year when imports will be necessary to meet gas demand in Ukraine and that fact alone will raise the mark on the tension meter,” stands in the report.

Press Release, September 4, 2014