PIRA Energy Group has reported record high spot price quotes in Asia. In the US, consuming East storage is leaving the country in a weak position. In Europe, changing supply dynamic is the main factor affecting future gas pricing.
Asia spot price quotes
Record high spot price quotes in Asia are a reflection of a spot market where less volume is being sold at higher prices because more volume is ending up being sold under contract. Buyers exposed to the spot market are not happy with this development, as the relatively thin amount of spot availability is not likely to disappear in 2014.
European supply dynamic
Gas supply is down from Norway, the Netherlands, the UK, and LNG sources. Meanwhile, Russian supply continues to grow. This changing supply dynamic is the main factor affecting future gas pricing in Europe. In part, the lack of Russian decreases is due to the reduced flexibility built into the restructured contracts for buyers. These buyers wanted a lower base for oil-indexed prices and received it, but in return they had to give up some of their nominating flexibility. Results of this trade and for spot markets are now appearing, and it is applying downward pressure on day ahead prices.
US storage consumption
The market’s bullish tendency appears to be supported by the problem of supply scarcity in the East, where consumption is on the rise. This region’s two-fold defense against scarcity of local inventories and access to high-deliverability salt storage has left the area in a vulnerable position.
US shale and LNG
With regard to US natural gas, until recently supply side developments have dominated, with the remarkable growth in Marcellus/Utica accelerating in 2013 and likely to grow even stronger in 2014. PIRA still forecasts that the demand side of the shale revolution will eventually catch up with the supply side, as US gas use in transportation, new industrial plants and LNG exports take off in the second half of this decade requiring increasing volumes of more expensive gas.
Adapted from press release by Katie Woodward
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