PIRA’s analysis of natural gas market for the past week revealed that additional counter-seasonal buying is not large enough to support spot prices while EIA reported an increase in stored amounts of gas. Europe has to find a way to cut supply if the spot prices are to remain anywhere near the current mark.
PIRA estimates that buying in counter-seasonal markets (Brazil, Argentina, Kuwait, Dubai, and Israel) from April to June is up year-on-year by around 14 MMCM/D. The question remains how many more such opportunistic purchases will take place in these counter-seasonal markets, particularly in the case of Brazil and Argentina, where relatively low priced spot LNG cargos are still well above domestic subsidized gas prices. Mideast buyers, which are also oil exporters, have the benefit of a substitution effect of LNG imports to free up oil. But in Kuwait and Dubai, there are some import constraints (as there are in South America).
Another Bearish EIA Storage Surprise
Another stouter-than-anticipated injection was reported in EIA storage update. In addition to being considerably larger than both the year-ago figure (94 BCF) and the five-year average (81 BCF), the 110 BCF build was 5-7 BCF above consensus expectations owing to stronger indicated refills in the East and Producing regions.
Supply Cuts Becoming An Imperative in Europe
Additional supply cuts will have to come if spot prices are to remain anywhere near where they are today. Even before factoring in year-on-year demand losses, the third quarter is the lowest demand period of the year, with consumption dropping another 150-200 MMCM/D versus the second quarter. Typically, this decrease in use would be offset by an increase in storage injections. This year, such increases will not be possible due to capacity constraints, and PIRA is forecasting a decrease in quarter-on-quarter injection rates out of sheer necessity.
Press Release, July 2, 2014