Global Gas and LNG in Flux. Michael Smith, Gas Trading Analytics BIEE Gas Outlook Seminar, 10th October 2011

Transcription

1 Global Gas and LNG in Flux Michael Smith, Gas Trading Analytics BIEE Gas Outlook Seminar, th October 211

2 Cautionary Statement This presentation and its contents have been provided to you for informational purposes only. This information is not advice on or a recommendation of any of the matters described herein or any related commercial transactions, whether they consist of physical sale or purchase agreements, financing structures (including, but not limited to senior debt, subordinated debt and equity, production payments and producer loans), investments, financial instruments, hedging strategies or any combination of such matters and no information contained herein constitutes an offer or solicitation by or on behalf of BP p.l.c. or any of its subsidiaries (collectively "BP") to enter into any contractual arrangement relating to such matters. BP makes no representations or warranties, express or implied, regarding the accuracy, adequacy, reasonableness or completeness of the information, assumptions or analysis contained herein or in any supplemental materials, and BP accepts no liability in connection therewith. BP deals and trades in energy related products and may have positions consistent with or different from those implied or suggested by this presentation. This presentation also contains forward-looking statements. Any statements that are not historical facts, including statements about the BP's beliefs or expectations, are forward-looking statements. These statements are based on plans, estimates and projections and you should not place undue reliance on them. These statements are not guarantees of future performance and involve certain risks and uncertainties, which are difficult to predict. Therefore, actual future results and trends may differ materially from what is forecast, suggested or implied in any forwardlooking statements in this presentation due to a variety of factors. Factors which could cause actual results to differ from these forward-looking statements may include, without limitation, general economic conditions; conditions in the markets in which BP is engaged; behavior of customers, suppliers, and competitors; technological developments; the implementation and execution of new processes; and changes to legal, tax, and regulatory rules. In addition, financial risks such as currency movements, interest rate fluctuations, liquidity, and credit risks could influence future results. The foregoing list of factors should not be construed as exhaustive. BP disclaims any intention or obligation to publicly or privately update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.

3 Presentation outline Recent developments in key markets regional supply/demand LNG supply/demand price signals Market outlook Conclusions

4 y-o-y change (bcf/d) Major gas markets grew strongly through 2. North America and Asia have stayed strong into 211 but Europe has weakened 15 5 Asia LNG imports North America demand* Europe demand** Total -5 - Q8 Q28 Q38 Q48 Q9 Q29 Q39 Q49 Q1 Q2 Q3 Q4 Q111 Q211 *USA (implied demand), Canada & Mexico ** Big 6 consumers (UK, Germany, Italy, France, Netherlands & Spain) Source: EIA, PIRA Energy Group, FACTS, DECC, BAFA, SNAM, GTS, Enagas, French Ministry of Ecology & Sustainable Development

5 HDDs vs. year normal Weather was a key driver of strong 2 demand, especially in Europe Asia LNG North America Europe* Colder than normal Q8 Q28 Q38 Q48 Q9 Q29 Q39 Q49 Q1 Q2 Q3 Q4 Q111 Q211 * Big 6 consumers (UK, Germany, Italy, France, Netherlands & Spain) Source: PIRA Energy Group Warmer than normal

6 y-o-y change (bcf/d) Strong US production growth from 2Q 2 absorbed in the domestic market and via lower net gas imports US production Net LNG imports Total Net pipe imports Storage -8 1Q 8 2Q 8 3Q 8 4Q 8 1Q 9 2Q 9 3Q 9 4Q 9 1Q 2Q 3Q 4Q 1Q 11 2Q 11 Source: EIA

7 y-o-y change (bcf/d) Supply flexibility in evidence throughout the cycle in the European* gas market Q1 8 Q2 8 Q3 8 Q4 8 Q1 9 Q2 9 Q3 9 Dutch production Other Big 6 production Russia p/l imports Norway p/l imports Algeria/Libya p/l imports LNG imports Storage Net supply * Big 6 includes: UK, France, Germany, Netherlands, Spain, Italy Q4 9 Q1 Q2 Q3 Q4 Q1 11 Q2 11 Sources: DECC, BAFA, Enagas, SNAM, GTS, French Ministry of Ecology & Sustainable Development

8 European gas production falling rapidly so far in 211 5% % -5% -% -15% -2% YTD 9 vs -25% UK Denmark Dutch small fields Norway UK based on DECC production data and National Grid flow data through August 211 Denmark/Norway/Netherlands/Germany based on official data through July Probably elements of responding to demand weakness and different phasing of maintenance in these numbers Germany Source: DECC, Danish Energy Agency, NPD, NLOG BAFA,

9 UK supply stack, bcm LNG became the second largest source of supply to the UK market in 1H UKCS production Norway Other Pipe LNG Storage Q9 Q29 Q39 Q49 Q1 Q2 Q3 Q4 Q111 Q211 * Other imports includes exchange with Belgium, the Netherlands and Ireland Source: UK DECC

10 Asian LNG imports show very strong y-o-y growth during January-July 211 6% 5% 4% 3% 2% % % Asia-Pac Japan Korea Taiwan China India Asia-Pacific LNG imports ~15% higher (19 mtpa annualised) y-o-y during Jan-Jul 211 Japan/Korea/Taiwan LNG imports up by over %year-to-date Chinese growth accelerated during last 3 months with new terminals commissioned Indian demand strength reflects shortfalls in domestic (KG Basin) gas production Source: FACTS Global Energy

11 y-o-y change (million tonnes) Re-direction of flexible Atlantic Basin/Middle East LNG supplies has been the main mechanism for managing the cycle in Asian LNG importers Atlantic Other Mid East Qatar Pacific Total -4 Q1 8 Q2 8 Q3 8 Q4 8 Q1 9 Q2 9 Q3 9 Q4 9 Q1 Q2 3Q 4Q 1Q 11 2Q 11 * Asian LNG importers: Japan, Korea, Taiwan, China, India, Thailand Source: FACTS Global Energy

12 y-o-y change (million tonnes) Global LNG supply/demand balance: return to growth for contract/new markets has absorbed most of 2-11 supply surge but incremental LNG stll pushing into N.W. Europe at the margin Q1 8 Q2 8 Q3 8 Q4 8 Q1 9 Q2 9 Q3 9 Q4 9 Q1 Q2 Q3 Q4 Q1 11 Q2 11 Japan, Korea, Taiwan China, India Other Europe South America Mid East UK, Belgium North America Total Source: Waterborne Report

13 $/mmbtu NBP shows clear divergence vs. Henry Hub but still trading in coal switching range and below AGIP FSP band Henry Hub (26 Sep 11) NBP (26 Sep 11) AGIP Source: ICE, NYMEX, BAFA,

14 Gas share of thermal power gen. Higher UK price feeding back into demand: gas share of thermal power lower in 1H % 7% 66% 62% % 28 54% 5% % 42% Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Source: DECC

15 Outlook

16 Forecast growth (%) IMF economic forecasts for Europe and USA downgraded in September but strong growth still forecast for Non-OECD Oct- Apr-11 Sep-11 World OECD Non- OECD EU Japan USA Dev. Asia Source: IMF

17 yera MA RRR year moving average gas reserve replacement vs. production & consumption: Europe 18% 16% 14% 12% % 8% 6% 4% 2% % years ending in: Source: BP Statistical Review Reserves replacement rate of % implies flat production at a fixed reserves to production ratio Possible to increase production at reserves replacement rate below % by squeezing R/P ratio but not sustainable long term and leading to steeper decline once past peak (UK experience)

18 Installed and Available Capacity, GW Japanese nuclear plant operating rates plunged after the March quake. Future is uncertain 12 5 Load factor, % (RHS) 8% 7% Earth Quake 6% 5% Installed capacity ~5GW (LHS) Available capacity, GW (LHS) 4% 3% 2% % % Source: Japan METI

19 211(e) 212(e) 213(e) 214(e) million tonnes p.a. Strong growth in re-gas capacity in Asian growth markets expected over the next 3 years Thailand India Indonesia (Java) China Malaysia (Peninsular) Singapore Project under construction, ~5mtpa China (18mtpa) Tangshan Dalian LNG Hainan LNG Shandong LNG ZheJiang Zhuhai LNG India (7mtpa) Kochi Ratnagiri Thailand: Mab Ta Phut (5 mtpa) Indonesia: Nusentara (3mtpa) Malaysia: Melaka LNG (4 mtpa) Singapore: (6 mtpa) Source: project public announcements

20 y-o-y change in capacity (mtpa) Expected LNG capacity additions (adjusted for month of start-up) fall sharply during , prior to next wave of supply Commissioned and under construction projects only Algeria Indonesia Qatar USA Peru PNG Australia Malaysia Russia Angola Yemen e 212e 213e 214e 215e 216e 217e 218e 2 saw highest ever LNG capacity additions. Momentum carries over into 211 Net capacity additions average only 5 mtpa vs. >25 mtpa Element of delay built into new wave of Australia/PNG projects given complexity and recent experience Source: project public announcements

21 12-month MA of utilization rate LNG project operating rates impacted by gas supply/operational issues and hence unpredictable % 9% Algeria 8% Nigeria Indonesia 7% 6% Egypt 5% Source: Waterborne Report

22 Conclusions Strong 2 demand growth in North America and Asia continued into 211, in contrast to European demand weakness Major change in UK supply structure with growing role for LNG NBP price currently in coal switching range and below AGIP. Clear divergence vs. Henry Hub European/US economic forecasts downgraded but, as yet, growth forecasts for Non-OECD economies have not changed significantly Strong momentum in US gas production suggests continued disconnection from global market, as signalled by relatively low NYMEX futures Opposite trend in Europe signals growing import dependence. Pipeline/LNG split will depend on availability of flexible LNG and relative prices Aftermath of Japanese quake and emergence of new markets suggest strong LNG growth momentum in Asia Pronounced cycle in LNG supply with limited additions in followed by new wave of supply, mostly from Australia Global LNG market is cyclical and prone to shocks, highlighting value of growing flexibility