Recent PIRA Energy Group weekly report finds that multiple offers comfort the buyers but hurt the spot sellers, and Henry Hub in the U.S. dipped bellow $4, while Europe’s oil-indexed pricing becomes more important in spot/contract relationship.
“Explaining the current weakness of the spot LNG market is not a huge mystery; buyers are consuming LNG on a just-in-time basis and require less spot LNG to do so due to an increase in year-on-year liftings under long-term contract. Sellers are trumpeting the beginning of speculative buying to the press, but PIRA see no signs of it,” said the Energy group in its report.
The NYMEX Henry Hub prompt contract settled below the $4 mark for the first time since early December following another higher-than-expected weekly U.S. storage build. The EIA’s reported 107 BCF refill added to earlier losses, resulting in an immediate selloff of ~10¢ in the August contract before it found support in the mid $3.90s.
PIRA also notes that spot prices appear to have found a floor for the time being, as some gas demand growth is responding to pricing signals and major gas suppliers continue to cut back. Now that the dust has settled in this most recent bearish turn, it is important to take stock of the current relationship between spot and contract gas prices, as the issue of re-setting the base price of the latter will emerge in the months to come.
“What’s so interesting about this year’s bear market is that contracts with oil indexation are responding to weaker spot gas prices, even though oil prices have remained fairly stable,” says PIRA.
Press Release, July 24, 2014