PIRA: European LNG Needs to Play Central Role in Asian Spot Pricing This Winter

PIRA Energy Group believes that European LNG needs to play a central role in Asian spot pricing this winter. In the U.S., slower storage draws in the upcoming heating season. Asian demand was revised higher for the fourth quarter.

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

Having enough spot supply this winter is becoming more and more predicated on Europe not needing its contracted LNG to balance. This assumption is far from a sure thing, as a significant disruption in spot price stability in the global gas trade is as close as a few more heating degree days (HDDs) above normal or a cold snap. PIRA’s 10-day outlook for European daily demand is moving from severely below normal to near normal by the beginning of November, however, this move towards normal seasonal demand is not enough to send out the clarion call for Europe’s contracted LNG to come home after being abroad for the better part of 2013.

Slower Storage Draws in the Upcoming Heating Season

PIRA’s gas balances for the 2013-2014 heating season have a decidedly bearish flavor. For the most intensive demand period, December through February, higher year-on-year Henry Hub prices should lead to sizable reductions in gas-fired electric generation. Coupled with a Lower 48 production upsurge, PIRA’s winter balances cause the expected end-October 2013 storage deficit to reverse into a year-on-year surplus by the end of 1Q14 if weather is normal and domestic supply is not seriously disrupted by well freeze-offs.

Asian Demand Revised Higher for the Fourth Quarter

PIRA has revised upwards the 4Q/1Q winter outlook for Asian demand. The slight increase projects supply additions stemming from a continued flow of diverted and re-exported European cargos meeting higher demand from Korea and China. Both countries stand eager to take in underlying growth volumes, and that’s even before the weather effect kicks in.

Alberta’s Gas Renaissance

The Duvernay, and other formations within Alberta’s Deep Basin, have not only revitalized current activity levels, but also pose tremendous upside potential going forward. While flat to higher year-on-year prices will limit Alberta’s gas production declines in the short term, a lack of outlets for new Canadian supply will constrain the development of the province’s gas resources for now. But PIRA expects to see sustained gas production growth in the province once Canada begins exporting LNG off the west coast later this decade.

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LNG World News Staff, October 30, 2013