PIRA Energy Group believes that a tight supply market could squeeze out non-contracted buyers in South America. In the U.S., bullish gas price risks remain, especially in Northern tier. Despite conflict, Ukraine intends to keep gas prices down.
Specifically, PIRA’s analysis of natural gas market fundamentals has revealed the following:
Strong Demand from Key Buyers
Strong demand from key buyers like Japan and China in 2Q will compete with counter seasonal demand plays from April – a tight supply market could squeeze out non-contracted buyers in South America.
Bullish Gas Price Risks Remain, Especially in Northern Tier
Irrespective of the Henry Hub weakness in play ahead of March, downstream markets across the northern tier remain on edge. Gas scarcity fears are centered in the Midwest and eastern Canada as underscored by the gains posted this week in the financial basis swaps market. Frankly, if updated forecasts indicate that below-normal temperatures will carry deeper into March and elevate GWHDDs to rival last year’s levels, scarcity concerns will intensify with more comparisons to 1Q03. An expansion of scarcity risks may not only further inflate downstream prices above levels seen to date, but again have a knock-on effect, dragging Henry Hub and even prices in the West higher even if temperatures in that region remain mild.
Despite Conflict, Ukraine Intends to Keep Gas Prices Down
Ukraine’s National Commission on Energy Regulation (NERC) intends to hold down the price of gas at a reduced level for industry until the end of June, even if the discount on natural gas imports in the second quarter will be canceled. Gazprom has not yet said whether or not the discount will be revoked in light of the recent political developments.
Gas Storage Refill Headwinds
Although widespread concerns surrounding the threat of gas scarcity in the waning days of the heating season have eased, considerable damage already has been done to U.S. and Canadian inventories. The now assured record high withdrawals in each country will leave an outsized footprint for injection season gas balances given the refills needed to reach what the market will likely deem minimum acceptable end-October levels. PIRA’s bullish gas prices for the 2014 injection season are rooted to foreseen storage refill headwinds relative to our end-October level.