PIRA Energy Group believes that while downward pressure on European natural gas spot prices will eventually emerge, such a downward move in the weeks to come would mean that supply from several sources is overwhelming the market’s ability to consume it.
In North America, US natural gas storage built week-on-week. In Asia, LNG storage issues moved up on the priority list as supply grows.
Europe
While PIRA does believe that downward pressure on spot prices will eventually emerge, such a downward move in the weeks to come would mean that supply from several sources is overwhelming the market’s ability to consume it. PIRA has seen little in the way of storage draws this month around the Continent, which implies that further cuts in domestic production (Dutch and UK) and imports will need to occur if a balance at current prices is to be struck.
USA
The holiday-delayed EIA weekly US storage report that revealed a 40 billion ft3 build topped the consensus by a few billion cubic feet while more handedly besting both the year-ago and 5-year average builds. Those bearish comparisons fuelled additional NYMEX selling that followed the bullish-to-bearish price reversal that had dominated last week’s trading prior to the storage update.
Asia
The quandary regarding the lack of a suitable Asian LNG/gas trading hub is a long-standing one and as Asian buyers seek to decouple from oil linkage. It is taking on increasing importance, particularly for Asian and Mideast suppliers with no obvious gas benchmark. Furthermore, as a critical mass of LNG spot transactions migrate to Asia, not just during winter peaking periods but essentially as a year round form of supply, this missing ‘hub’ is becoming increasingly awkward.
Edited from PIRA analysis by Katie Woodward