PIRA Energy Group reports that South America joins Asia in spot price support. U.S. production to bear burden of narrowing U.S. storage deficit. European storage outlook begins to morph.
Specifically, PIRA’s analysis of natural gas market fundamentals has revealed the following:
The gravitational center of LNG trading is firmly in Asia, and spot prices are showing more strength on the ongoing maintenance of strong nuclear-outage related Japanese demand, but the once counter seasonal markets in South America are holding their own in the “off season” and as a result are keeping a floor on global spot prices. That floor remains at a large discount to Asian spot prices, begging the question of how long Asian prices can be supported over $19.00/mmBtu. Still, buyers such as Petrobras, Enarsa, and Mexico’s CFE appear to be having no trouble securing incremental spot volumes for February and March.
U.S. Production to Bear Burden of Narrowing U.S. Storage Deficit
PIRA’s October forecast had projected an end-January year-on-year U.S. storage deficit of ~100 BCF using 10-year normal GWHDDs. Now, a 600+ BCF deficit looms for that date — cold weather the overpowering cause. Canadian exports have been inflated to help meet higher-than-expected U.S. demand, but the size of Canada’s 1Q14 storage deficit is set to limit post-March shipments to the U.S. As a result, incremental year-on-year U.S. production looks burdened to assume a very heavy load in narrowing U.S. storage deficits before the next heating season.
European Storage Outlook Begins to Morph
Another area of supply being pulled from the market is storage, which if maintained, will have considerable effects on the summer injection season. Storage withdrawal levels in many key countries are absolutely anemic by historical standards, turning what once was a large storage deficit going into winter into a sizable surplus. While Europe does not have nearly the storage capacity it needs to handle its normal weather load, it is still managing to underutilize the facilities it operates.