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LNG outlook for Asia, Europe and the US

LNG Industry,

PIRA Energy Group believes that Asian liquefied natural gas (LNG) spot price premium is working its way back to Europe. In the US, colder weather compared to last year is important to keeping storage draws in line with 2012. PIRA also questions whether Europe will pull on its contracted LNG to balance demand growth that is sensitive to the winter weather. Analysis of natural gas market fundamentals has revealed the following:

Asian spot price premium

A tighter LNG balance is encouraging Asian buyers to import increasingly more LNG cargos from global markets. Asian buyers are now at a time of the year when regional supplies are not large enough to meet demand and the increasing winter consumption levels. PIRA expects import prices to show spot price premiums above weighted average contract gas prices.

US colder weather

Colder year-on-year weather has played a significant role in keeping storage draws in line with last year. The absence of Henry Hub (HH) price premiums that had been in place since the last quarter of last year has also been a factor. Looking forward, the responsibility will fall on colder weather for faster storage draws, as last December’s mild weather will provide only a temporary relief. However, the buildup of production remains the primary explanation for PIRA’s more bearish outlook for HH prices next year.

Europe’s contracted LNG

Two issues are driving the bullish outlook in prices: weather-sensitive demand in Europe and supply-constrained spot price increases in Asia. PIRA's 10-day daily gas demand outlook for Europe suggests a more bullish outlook for day-ahead prices. A small but significant increase in supply will be necessary to meet this immediate demand growth.

Adapted from press release by Katie Woodward

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