OREANDA-NEWS.  September 24, 2013. NYC-based PIRA Energy Group reported that China has increased its LNG import capacity but the country’s volume lags. In the U.S., while output has held relatively steady thus far in 3Q13, gas drilling has managed to stage a modest rally since bottoming out in May and June.

In Europe, major shifts in Russian gas flows over the past few weeks portend a future when additional adjustments will be made on a more significant scale. Specifically, PIRA’s analysis of natural gas market fundamentals has revealed the following:

China’s overall LNG import growth has been lackluster this year compared with its growth import infrastructure, and demand for AB cargos in particular has been exceedingly weak. As the country readies itself to commission another two to three terminals by the end of this year, it’s not clear that the new capacity will translate into a measurable increase in imports beyond initial commissioning cargos. This reluctance to commit to higher import volumes is a primary reason why spot prices in Asia appear to be stuck at current levels despite the upcoming winter buying season.

Dry Gas Drilling Rebound

While U.S. output has held relatively steady thus far in 3Q13, gas drilling has managed to stage a modest rally since bottoming out in May and June. Unsurprisingly, increased drilling activity in the Marcellus/Utica plays has been the prime driver behind this rebound, but rig count gains elsewhere appear to go counter to the conventional wisdom of late. Growth has been weighted to dry gas regions versus wetter areas, in addition to higher vertical/directional rigs as opposed to the horizontal rigs predominantly utilized in unconventional plays.

Russia Connects Europe and Asia

Major shifts in Russian gas flows over the past few weeks portend a future when additional adjustments will be made on a more significant scale. None of these recent shifts will have a demonstrative influence on spot or contract prices in the near term, but they offer a glimpse at a market in the second half of the decade when Russia will not only be connected more directly with Western Europe, but also with the Asia market.