Natural gas The carbon and gas nexus: The end for coal

Transcription

1 13/1/21 Natural gas The carbon and gas nexus: The end for coal Trevor Sikorski, October 21 Carbon pricing: Domestic policy is everything 1

2 13/1/21 PARIS (1/1) Emissions trading is exception.paris changes nothing Alberta. Quebec California, RGGI, Paris is about getting countries to pledge to undertake and finance mitigation and adaptation activity. It is not about imposing solutions. Its main impact could be more domestic climate regulation. 3 Natural Gas outlook CARBON (1/) EUA prices set to rise EUA prices /t Forecast prices /t 1 2 Forecast Forward curve Policy events Dec 12 Jun 13 Dec 13 Jun 14 Dec 14 Jun Upward trend points to the impact of policy interventions being quite strong What will be the path of carbon prices our forecast or the current forward curve? Source: Reuters, Energy Aspects 4 Natural Gas outlook 2

3 Wind Gas PV Other renewables Nuclear Coal Fuel oil 13/1/21 CARBON (2/) Weak fundamentals: Industrials Industrial emissions Industrial Production Index 6 4 Pulp and paper Cement, lime & glass Metals Oil and gas Metals Cement, Lime, Glass Pulp and paper Generally stable emissions profile as activity is yet to get return to 28 levels Source: Eurostat, Energy Aspects Natural Gas outlook CARBON (3/) Weak fundamentals: Power is decarbonising Power emissions 1, European net capacity changes, GW 12 1,4 7 1,3 2 1,2 (2) 1, General reduction in power sector emissions although weather has an impact As renewable capacity growth has been consistent Source: ENTSO-E, Energy Aspects 6 Natural Gas outlook 3

4 13/1/21 CARBON (4/) Policy, policy and more policy Workings of the MSR 2, 1, 1, () Injection to MSR Withdrawal from MSR Market inventory MSR Inventory MSR Injection threshold: MSR Withdrawal threshold: Y Y3 Y6 Y9 Y12 Y1 Component Parameter MSR start date 219 Inventory = emissions Market inventory (MI) calculation less EUA allocation less offset use less allowances in MSR Market inventory (MI) basis end of Y-2 MSR Injection threshold: MI > 833 MSR Withdrawal threshold: MI < 4 Injection rate 12% of MI Withdrawal rate 1 Starting Inventory Backloaded volumes 9 Unallocated P3 volumes 3 to 7 MSR starting inventory 12 + Assumes a 1 short every year THIS IS A PRICE SUPPORT MECHANISM 7 Natural Gas outlook CARBON (/) Tightening up EUA Inventory per year EUA Inventory Desired Carbon Inventory 2, 2, 1, 1, MSR Base No MSR 1, 1, () (1,) () (1,) Aggregate length in the market is beginning to fall. The market starts to dip against desired carbon inventory. 8 Natural Gas outlook 4

5 13/1/21 Global gas outlook: That sinking feeling GLOBAL (1/) Gas pricing: increasing convergence Global gas pricing $/mmbtu Japan India UK US Global gas market: Significant convergence Gas less of a premium fuel North American discount remains, but has shrunk The supply story is just beginning Global prices seeing a higher degree of convergence over the year, with Northeast Asia at a small premium Source: Reuters, Energy Aspects 1 Natural Gas outlook

6 13/1/21 SUPPLIES (1/2) The supply side has two waves of LNG in the coming five years Wave 1: Australia 214 to 218 Wave 2: US 216 to 22 8 Prelude 8 6 Ichthys Wheatstone 6 Corpus Christi Cove Point 4 Gorgon 4 Freeport 2 2 Gladstone APLNG 2 Freeport 1 Cameron LNG Queensland Curtis (BG) Sabine Pass 1+ pa of Australian projects; 66 pa under construction 36+ pa of US projects; 61 pa under construction Source: Company websites, US DOE, Energy Aspects 11 Natural Gas outlook SUPPLIES (2/2) Supply increments just starting but prices are low... Incremental Liquefaction Regas and Liquefaction capacity additions pa Q2 14 Q2 1 Q2 16 Q2 17 Sabine Pass (USA) Angola Prelude (Aus) Ichthys (Aus) Petronas T9 (Mal) Wheatstone (Aus) Arzew (Alg) Bintulu (Mal) Donggi-Senoro (Ind) APLNG (Aus) Gladstone (Aus) Gorgon (Aus) Q. Curtis (Aus) PNG LNG Regas increments Liq. increments Q1 1 Q1 16 Liquefaction expanding rapidly mid-decade adding 17 pa by 22. Current capacity is 3 pa Regas capacity is also coming online, but not as fast The implications are you need higher utilisation Source: Company reports, Energy Aspects 12 Natural Gas outlook 6

7 China UK Belgium Japan France S. Korea Netherlands Lithuania India Poland Other Asia Italy Greece Europe Iberia Lat. America NW Europe GB Bel, Net, Fra Deu, Aus Pol, Hun, Cze Italy Iberia Greece 13/1/21 DEMAND (1/8) Global demand: where is new regas coming in? Regas capacity by country Global gas consumption bcm Europe APAC Lat Am North America MENA Projects under construction or highly advanced (FEED onwards) are primarily found in Asia year CAGR is 2.6%, strongest growth in Asia and MENA Source: Bloomberg, Energy Aspects 13 Natural Gas outlook DEMAND (7/8) Europe - the residual LNG taker EU: gas imports versus terminal capacity EU: fuel switching capacity Unused Cap Imports Plenty of capacity, with around 16 bcm/y of unused regas maybe 12 bcm is realistic due to maintenance Plenty of latent power sector demand to stimulate about 9 bcm in total Source: Bloomberg, Energy Aspects 14 Natural Gas outlook 7

8 13/1/21 BALANCE (1/4) How does the market balance? 3 pa 1 pa +6 pa 37 pa 4 pa 88 pa 96 pa 2 pa 4 pa 6 pa 18 pa 1 pa pa 3 pa 4 pa 3 4 pa pa +6 pa 26 pa Demand Supply 1 Natural Gas outlook BALANCE (2/4) How does the market balance? 3 pa 1 pa +6 pa 37 pa 4 pa 88 pa 96 pa 2 pa 4 pa 6 pa 18 pa 1 pa pa 3 pa 4 pa 3 4 pa pa +6 pa 26 pa Demand Supply 1 - Qatari spot pushed out of Asia 16 Natural Gas outlook 8

9 13/1/21 BALANCE (3/4) How does the market balance? 3 pa 1 pa +6 pa 37 pa 4 pa 88 pa 96 pa 2 pa 4 pa 6 pa 18 pa 1 pa pa 3 pa 4 pa 3 4 pa pa +6 pa 26 pa Demand Supply 1 - Qatari spot pushed out of Asia 2 - NA pushed out of Asia 17 Natural Gas outlook BALANCE (4/4) How does the market balance? 3 pa 1 pa +6 pa 37 pa 4 pa 88 pa 96 pa 2 pa 4 pa 6 pa 18 pa 1 pa pa 3 pa 4 pa 3 4 pa pa +6 pa 26 pa Demand Supply 18 Natural Gas outlook 1 - Qatari spot pushed out of Asia 2 - NA pushed out of Asia 3 - NA pushed out of Europe 9

10 /t implied carbon 13/1/21 PRICES (1/2) Gas pricing: implications Lever Implication 1 - Qatari spot pushed out of Asia Northeast Asia at a discount to NBP 2 - NA pushed out of Asia Northeast Asia no more than HH + 2 $/mmbtu 3 - NA pushed out of Europe Northwest Europe no more than HH +. $/mmbtu Global price being driven by Henry Hub 19 Natural Gas outlook DEMAND (8/8) Europe - fuel switching, but at what prices? UK: Q1 16 fuel switching curve bcm EU Carbon impacts on switching prices /t $/t coal 6 $/t coal (1) 6$ coal 7 $ coal 1 $ coal $ coal p/therm p/therm gas price Suggests switching gains between 2-28 p/therm. While Continental switching is around 2-3 p/therm EU ETS prices affect, and affected by, fuel price relativities for % efficient gas versus 3% coal Source: Bloomberg, Energy Aspects 2 Natural Gas outlook 1

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