The Global LNG Market in Transition: Where are We Going?

Transcription

1 The Global LNG Market in Transition: Where are We Going? Kenneth B Medlock III, PhD James A Baker III and Susan G Baker Fellow in Energy and Resource Economics, and Senior Director, Center for Energy Studies Rice University s Baker Institute August 3, 2017

2 We start with the future of energy. The story is the picture, but the devil is in the details 2

3 Total Primary Energy Requirement by Country Data Sources: IEA, BIPP CES 3

4 Oil Demand by Country Data Sources: IEA, BIPP CES 4

5 Coal Demand by Country Data Sources: IEA, BIPP CES 5

6 Natural Gas Demand by Country Data Sources: IEA, BIPP CES 6

7 Regardless of the view of global energy markets, natural gas will be a significant proportion of the global energy mix for the next few decades. How is this demand to be met? Given much of the projected demand growth will be in developing Asia, where there is a paucity of domestic resource, LNG is likely to play a critical role. Shale has been paradigm shifting for both natural gas and crude oil markets, but it has been a US-centric development. Questions remain regarding the opportunities for shale and other frontier resources outside the US, but there is a potentially important and expanding role for energy in the Western Hemisphere. Energy efficiency will be a major part of any environmentallydriven path forward. But, natural gas will gain in favor. 7

8 How have LNG Markets Evolved? LNG trade has more than doubled in the last 15 years. Source: GIIGNL

9 Who is Buying? The composition of LNG importers has changed significantly. Source: GIIGNL

10 Who is Selling? The composition of LNG exporters has also changed significantly. Source: GIIGNL

11 Trade is Deepening, and Evolving Spot and short term trade as a fraction of all trade has more than quintupled. Source: GIIGNL

12 with a Diverse set of Actors Shares of spot and short term trades indicate a diverse set of importers and exporters participating in deliveries not dictated by long term contracts Source: GIIGNL

13 and Spot Trading is Related to the Number of LNG Market Outlets As markets deepen, spot transactions grow. This is consistent with economic theory and indicates a rapidly evolving global LNG market. Sources: Data from GIIGNL and Analysis by Peter Hartley, Recent Developments in LNG Markets and Possible Implications for the Future

14 North America and the Path Forward 14

15 North American Natural Gas Supply Including all gas resources, there is about 2,500 tcf available at wellhead prices below $6, and 1,700 tcf at well head prices below $4. So, North America is likely to be a driver of global gas market developments. Source: Baker Institute CES Research

16 US Natural Gas Production* A shale dominated picture emerges, highlighting a need for infrastructure development as well as opportunities for deeper North American integrations. * The results are from the Rice World Gas Trade Model (RWGTM). The RWGTM was developed by Kenneth B Medlock III and Peter Hartley at Rice University using the MarketBuilder software platform provided through a research license with Deloitte MarketPoint, Inc. The architecture of the RWGTM, the data inputs, and modeled political dimensions are distinct to Rice and its researchers. Data depicted are from the recent CES/Oxford study completed for the US DOE, The Macroeconomic Impacts of Increased US LNG Exports.

17 LNG exports increase in multiple locations, with the US emerging as the 3 rd largest LNG exporter in the world behind Australia and Qatar, and LNG Trade* new consumers enter the market as global demands increase. The market continues to deepen, altering trading paradigms. * Data depicted are from the recent CES/Oxford study completed for the US DOE, The Macroeconomic Impacts of Increased US LNG Exports. 17

18 Prices* US price remains among the lowest in the world. Note, the long run price in the reference case is contingent upon the long run cost environment. Note that costs are currently below this level, exacerbated by recent lower rig activity and weak global demand. Scenario analysis indicates the outlook for price level can vary, but spreads are not affected similarly as greater global trade establishes regional price relationships. Select Global Prices Select Global Price Spreads * Data are from the CES/Oxford study completed for the US DOE, The Macroeconomic Impacts of Increased US LNG Exports.

19 So, where is the global gas market going? Natural gas markets are transitioning. - The US as an LNG exporter is significant for markets and geopolitics. - The elasticity of supply in North America will push the large long term price impacts onto international markets, not domestic. - Energy security centers on recognition of a deeply integrated North American market. A full realization of investment and trade potential yields significant supply responsiveness and positive economic benefit. - US LNG supply offers a credible threat to existing incumbent relationships, thus altering the bargaining table. Do not be myopic. Price will always depends on multiple factors, and weather is the biggest short term driver. There are many frontier resources are in the Western Hemisphere. North America is positioned to capture an increasing role in the global gas market balance, carrying geopolitical and environmental impact. 19

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21 Bonus Material Comments on energy demand by fuel and country 21

22 Economic Growth and Energy Demand: A Fundamentals Driven View 22

23 Global GDP by Country Data Sources: World Bank, PWT, IMF, BIPP CES 23

24 Global Population by Country Data Sources: World Bank, UN 24

25 Total Primary Energy Requirement by Country Data Sources: IEA, BIPP CES 25

26 Oil Demand by Country Data Sources: IEA, BIPP CES 26

27 Coal Demand by Country Data Sources: IEA, BIPP CES 27

28 Natural Gas Demand by Country Data Sources: IEA, BIPP CES 28