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Strong LNG demand growth in Mexico and Puerto Rico

LNG Industry,

PIRA Energy Group believes that LNG supply length is feeding niche North American demand. In the US, robust storage injections are above consensus; in Europe, the Netherlands’ natural gas role is changing, as production declines and imports rise.

North American demand

Mexico and Puerto Rico have seen very strong LNG demand growth this year, however this begs the question of whether the growth came as a result of stronger demand or simply that the LNG had nowhere else to go at a higher netback.

The truth lies somewhere in the middle, as Mexican gas demand is capable of growing quickly, however only if the gas is priced at a bearable level. US prices provide such a level, but the same cannot always be said for LNG imports, particularly when the parties involved have a better netback option elsewhere and a right to divert the cargo.

Storage injections above consensus

A 79 billion ft3 storage injection was reported in last week’s EIA update. The build bested the market consensus in the mid-70s and was also approximately 3 billion ft3/d above both the year-ago and five-year average.

Stout injections continued in the Consuming East, but the Producing Region rose to 10 billion ft3 after last week’s 5 billion ft3 seasonal low.

Dutch natural gas role

It is hard to build a scenario where Dutch demand growth is strong enough to lift Europe as a whole, however it is worth considering the possibility of the Dutch Title Transfer Facility (TTF) being stronger than other benchmarks in the region. Dutch gas production is down by a considerable 43 million m3/d year-on-year through August, and while much of this cut was associated with a warmer than normal first quarter, year-on-year cuts in production have actually been even stronger since April. Additional cuts in peak gas output during for the upcoming winter cannot be assumed this year because production was reduced so sharply last year.

Adapted from press release by Katie Woodward

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