LNG market needs new supply

Pira Energy Group has announced that a tightening LNG market is in need of new supply. However, it warns that such supply will be scant in 2014.

Over the past 12 months, 11 new LNG import terminals have opened up around the world and while import capacity does not equal full utilisation, 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. PIRA is showing three projects offering new LNG production this year.

Increased Canadian supply to the US

2014 looks set 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 on what supply can be taken

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 2013 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 a percentage of total demand) in late December 2013, while Norwegian hydro levels have increased and added power supply to Continental markets.

Adapted from press release by Callum O'Reilly

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