PIRA Energy Group believes that softer demand for spot LNG will continue while supply options broaden. In the US, another healthy storage build weighs on gas futures. In Europe, limits persist on the ability of gas to grab back demand in the UK.
LNG spot market
A weak global LNG spot market will not be dissipating any time soon. While PIRA sees global LNG supply down slightly year-on-year through June, significantly weaker demand is to blame for spot price weakness. Chief among the weaker demand points is the European gas market, which is diverting volumes away from a spot market that has dropped to a three-year low. PIRA does not see this situation changing any time soon and even the winter market will be vulnerable to weak spot prices that will trade at a discount to weighted average Japanese and broader Asian contract prices. Production cuts by LNG suppliers may have to be considered.
US storage inventories
Today's storage report indicated US inventories increased by 113 billion ft3, marking the sixth consecutive week of triple-digit builds. More important, however, was the fact that the week-on-week increase topped the consensus forecast centered on ~110 billion ft3.
UK gas demand
A key focus point in the weeks ahead is coal/gas switching, which has been somewhat revived by lower NBP prices. UK gas-fired dispatching has, to some extent, been better supported, having averaged roughly 11.8 GWs and 47.7 million m3/d of gas offtake in the NTS, however gas-fired generation is far from its ancient glory. With a strong recovery in residual power demand unlikely for the third quarter, PIRA is considering how much more coal-fired capacity can be switched off, creating room for gas-fired output.
Adapted from press release by Katie Woodward