PIRA Energy Group Releases Its Natural Gas Market Update for the Week Ending March 23

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Liquids-driven uncertainty surrounds the responsiveness of North American supply to low prices, while demand weakness in Europe has finally captured the market's attention.

PIRA Energy Group
PIRA has been skeptical of the fundamental underpinnings of recent spot gas price increases. PIRA has been focused on the extremely weak demand signals all across Europe, but some of the figures in recent days have been shocking,

NYC-based PIRA Energy Group believes that uncertainty surrounds supply-demand responsiveness to low prices in North America, reflecting the impact of non-gas price drivers on fuel switching and production decisions. Globally, weak demand in Europe has finally captured the market's attention. Specifically, PIRA’s analysis of natural gas market fundamentals has revealed the following:

*Liquids-Driven Uncertainty Surrounds Responsiveness of Supply to Low Prices. Following what is proving to be at least a one-in-80 heating season in terms of underlying U.S. temperatures, the uncertainty surrounding supply-demand responsiveness seems to be highlighted by the intermixed string of bullish and bearish "surprises" in the past several EIA weekly storage reports. The market's insecurity reflects the fact that non-gas price drivers can hamstring switching away from coal on the demand side and to liquids on the supply side.

*U.S. Natural Gas Injection Season Begins. As of the week ending March 16, the 2012 injection season was officially underway, according to the EIA's latest update on gas stocks. Although the market had anticipated a net injection, the size of the injection seemed come as a surprise. Unseasonable warmth swept most of the country, resulting in sharp week-on-week demand declines. However, year-on-year, weather-adjusted demand looks strong as depressed gas prices have increased demand in the electric generation sector.

*Weakness In Natural Gas Demand Finally Receiving Market Attention. In the past several weeks, PIRA has been skeptical of the fundamental underpinnings of the recent spot price increase. PIRA has been focused on the extremely weak demand signals all across Europe, but some of the figures in recent days have been shocking, and are finally receiving attention from the market. A weaker outlook for all three major gas-consuming sectors can be made, but the most significant of the three is the power sector, which typically plays a much larger role in overall gas demand in the second quarter.

*LNG Spot Prices Surge on Tighter Market in Asia. A tighter LNG market in Asia has set off a surge in spot prices since January that tracks all the way back to London. Instead of Asian buyers slightly overpaying for spot cargos that would otherwise go to Northwest Europe, these buyers are now paying huge premiums, up to what would be the netback to sellers delivering in the Atlantic Basin. Nigerian LNG marketers have done best at extracting incremental revenue after the Japanese tsunami. While other Atlantic Basin sellers have sold LNG in Asia at higher prices, Nigerian volumes have shot up by as much as all other sources combined.

*Asian LNG Demand Growth Limited in 2012. PIRA is wary of how much more LNG demand in Asia can grow at this point. Japanese demand growth will continue, but as spot prices drift above contract levels and key buyers bump up against infrastructure issues, 2011-style growth may be compromised in 2012. Growth will also be supply-constrained as long as Pluto and Angola volumes are delayed.

For Additional Information

The information above is part of PIRA Energy Group's weekly Energy Market Recap, which alerts readers to PIRA’s current analysis of energy markets around the world as well as the key economic and political factors driving those markets.

PIRA Energy Group
3 Park Avenue, 26th Floor
New York, NY 10016
212-686-6808
sales(at)pira(dot)com

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