Revised projections show less liquefied natural gas (LNG) coming to the United States than analysts at Barclays Capital previously thought. However, domestic production growth has been more robust than they expected. Gas will need to displace coal for power generation in order for the storage injection season to end with about 4 Tcf underground, the analysts said in a recent note.
The analysts said they now expect 2010 gas prices to average $4.51/MMBtu. In March the group had cut its 2010 price estimate to $4.17/MMBtu (see Daily GPI, March 25). In the latest report the analysts raised their Q3 price projection to $4.00/MMBtu. In March they had cut the Q3 estimate to $3.50/MMBtu. 2011 prices are still expected to average $4.10/MMBtu.
The analysts cut their expectation for global LNG output growth by 1 Bcf/d for 2010 and now expect year/year (y/y) growth of 4 Bcf/d on average this year, with wiggle room of 0.5 Bcf/d either way. U.S. imports are now expected by the Barclays team to average 1.5 Bcf/d this year.
“However, U.S. supply has been outperforming our outlook,” they wrote. “At the beginning of the year we had expected Lower 48 output to grow by 1.9 Bcf/d in 2010 y/y, but actual data from Q1 have pushed this projection to a y/y gain of 2.9 Bcf/d.”
Displacement of coal by gas will again be a prominent feature of the gas market this year, they said. “…[W]e estimate that coal displacement can achieve adequate size in Q3 at $4.00 [for gas] versus our earlier estimate of $3.50…We expect market prices to hunt well above and below our estimate to achieve enough coal displacement to put the market on a trajectory to achieve a feasible storage finish.”
The analysts said they expect injection season to end with 4 Tcf in stores, down slightly from their previous estimate of 4.1 Tcf.
Looking at the global LNG market, weather was the main factor behind demand growth during the first part of this year. However, economic recovery is taking hold at a quicker pace than expected, giving rise to more robust gas demand growth expectations by the Barclays team.
Asia and Europe both set records for LNG takes during the first quarter, and Latin America doubled LNG takes from a year ago, the analysts noted.
Gas-fired generation is displacing oil-fired units in Japan. China is adding regasification capacity, and its LNG capacity buildout “will remain a feature of the global LNG market over the coming years,” the analysts said.
Latin America is also adding regasification capacity; of particular note is Chile. “The supply-constrained Chilean market is likely to be a stable source of demand with the gas slated to fuel power generation plants, as well as for use by the residential and commercial sectors,” the analysts said.
“Aggregate Latin American demand averaged 0.4 Bcf/d higher y/y in Q1 ’10 and should continue to strengthen over the summer as Chile’s import facilities ramp up and the Southern Hemisphere winter boosts demand across the region.”
The increase in European LNG takes surprised the analysts the most, they said. The first quarter saw European industrial output grow 4.2% over 2009; growth is expected by Barclays economists to average 6.3% this year. “Although European domestic [gas] production is also on a rebound, and pipeline imports will likely rise, the continent appears ready to absorb the majority of LNG supply left after satisfaction of the appetite of Asian, Latin American and Middle Eastern consumers.”
The United Kingdom’s National Balancing Point (NBP) is offering a much wider premium to Henry Hub in the forward curve. The differential now averages $1.28/MMBtu in favor of NBP for the remainder of injection season, the analysts noted.
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