PIRA Energy Group believes that the liquefied natural gas (LNG) market attention is fixed on Asia. Also, in the US, there has been an important supply cushion for the country’s gas market for a number of years. PIRA’s analysis of natural gas market fundamentals has revealed the following:
Market attention on Asia
Market attention is riveted on Asia for January/ February spot cargo placement. The spot prices reflect the high end of the generally tight nature of LNG supply/demand balances. Tightness will persist well into next year and may be particularly acute during winter months, especially when multiple LNG consuming regions are experiencing below normal temperatures. However, a change in European weather-related demand to warmer than normal has eased up the call on LNG across the continent, but finding a spot cargo in the Atlantic Basin that is due to be exported to Asia remains a challenge.
US gas market supply cushion
New England LNG send-outs have provided an important supply cushion for the region’s gas market for a number of years. However, with regional gas supply declines negatively impacting gas-fired electric generation last year, the NE-ISO made arrangements to ensure that approximately 4.2 million bbls of oil will be available to backstop electric generation this winter. While this plan lowers the odds of electricity shortages during cold periods, it does reinforce the prospect of gas prices reaching oil-equivalent levels (and beyond) at times.
Relaxing of bullish spot and winter prices
The rapid change in the weather outlook over the past few days suggests that the recent bullish run in spot and winter prices will be taking a break. The length of this break will depend largely on two factors: weather sensitive gas demand changes and LNG supply. PIRA does not expect a huge sell off in day-ahead prices because supply remains highly constrained and easy to remove from the market, however the need to maintain the kind of length necessary over the past month has been severely reduced. PIRA’s 10-day gas demand outlook suggests a substantial shift to warmer than normal temperatures.
Adapted from press release by Katie Woodward