PIRA: Japan, Korea Nuclear Power Situation to Drive LNG Demand

PIRA Energy Group reports that the biggest change on the demand side in the upcoming year for LNG balances stems from the evolving nuclear power generation situation in Korea and Japan. The latest EIA update on U.S. storage indicated inventories declined, but the market’s attention appears fixated on the fallout stemming from the latest polar vortex and potential for below-normal temperatures into February. In Europe, Spanish gas demand is on a downward slope.

Specifically, PIRA’s analysis of natural gas market fundamentals has revealed the following:

Evolving Nuclear Power Generation Situation in Korea and Japan

The biggest change on the demand side in the upcoming year for LNG balances stems from the evolving nuclear power generation situation in Korea and Japan. Demand losses will occur in Korea, while in Japan, PIRA has pushed Japanese nuclear restarts to late 4Q from January, with no significant capacity coming on until late 2015. Thereafter, a significant surge in year-on-year LNG production will begin in late 2015 with the emergence of the first U.S. LNG exports, followed by more volumes from Australia. PIRA is building in new supply from six new LNG trains in 2015 with a capacity to produce 72-mmcm/d of LNG supply. If the plants come online as planned, it would be the single largest year-on-year increase (145-mmcm/d year-on-year) in capacity since 2010.

Fallout Stemming From Latest Polar Vortex

The latest EIA update on U.S. storage indicated inventories declined by 107 BCF — a 180 BCF week-on-week decline. But the market’s attention appears fixated on the fallout stemming from the latest polar vortex and potential for below-normal temperatures into February. PIRA’s latest outlook already shows a U.S. storage carryout of less than 1.3 TCF assuming normal GWHDDs during February and March. Given the threat of additional cold weather, NYMEX gas futures are likely to see continued support until more concrete signs of a sustained weather reprieve are seen.

Spanish Gas Demand Is On a Downward Slope

Underlying Spanish gas demand is on a downward slope again. While it may not mean a lot for NBP, it is significant for LNG trade in and around Europe. Up until now, the one country that needed to consume LNG in Europe was Spain because it did not have enough pipeline import capacity to rely solely on pipeline gas. What’s interesting is that in January and February of 2014 scheduled flows on the Duran and Medgaz pipelines are higher than what is widely considered each pipeline’s capacity. Based on these scheduled flows, it must then be assumed that pipeline import capacity is closer to 66-mmcm/d rather than 62-mmcm/d.

LNG World News Staff, January 30, 2014

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