Global Gas Dynamics Whatever Next?

Transcription

1 Global Gas Dynamics Whatever Next? Neil Thomas Head of Gas Research, Wood Mackenzie World Gas Conference Buenos Aires - October 29 Agenda 1 The Changing Environment 2 Demand 3 Supply Global Outlook Implications 2 1

2 Did you see this coming..? GDP % Change Top Ten Economies (2-22) 1% 12% 1% 8% 6% % 2% % -2% % -6% United States China France Germany UK Brazil Italy Canada India Japan Source: Wood Mackenzie Energy Market Service 3 And therefore this? Gas, Crude & Oil Product Pricing 2 US$ / mmbtu Dec 3 Feb Apr Jun Aug Oct Dec Feb Apr Jun Aug Oct Dec Feb 6 Apr 6 Jun 6 Aug 6 Oct 6 Dec 6 Feb 7 Apr 7 Jun 7 Aug 7 Oct 7 Dec 7 Feb 8 Apr 8 Jun 8 Aug 8 Oct 8 Dec 8 Feb 9 Apr 9 Jun 9 HH NBP JCC 2% Fuel Oil (ex-sing) Source: Platts, Wood Mackenzie 2

3 Short term blip or long term changes? The old view? Major gas markets showing strong growth but indigenous supply suffering from terminal decline (NA, Europe) Need for more imports (LNG and pipeline) Gas harder to find and more costly to develop generally tight supply demand fundamentals Slow move to global gas market (and price?) Major producers dominate and control (oil indexed) pricing The new view? Demand has been destroyed and future growth rates moderated Unconventional supply has changed the game in NA A short term excess of supply has expanded to medium term? Pressure on contracts especially in high oil price world Moving to global gas (spot?) market? Agenda 1 The Changing Environment 2 Demand 3 Supply Global Outlook Implications 6 3

4 Global gas demand growth has faltered and the outlook is significantly less favourable than pre-economic crisis Gas Demand Outlook (Q3 9 vs Q2 8) bcm (@ MJ/m3) b, 3, 3, 2, 2, 1, 1, CAGR 3.9% CAGR 2.8% Destruction of approx 2bcm (pa) of latent gas demand between to Q3 29 Q2 28 (Base Case) 7 Asia Pacific demand is the strongest growth region,, 3, CAGR.8% Gas Demand Outlook by region CAGR % CAGR.1% CAGR 2.2% CAGR.2% bcm (@ MJ/m3) 3, 2, 2, 1, 1, North America Europe Pacific FSU Other 8

5 With growth strongest in power and industrial sectors.. Gas Demand Outlook by sector bcm MJ/m3) CAGR 2.6% CAGR 3.% CAGR 2.% Power Industry Res/Com Other Transport Source: Wood Mackenzie 9 Agenda 1 The Changing Environment 2 Demand 3 Supply Global Outlook Implications 1

6 Alaska Vanc ouver Island Pacific Ocean Yukon Beaufort Sea British Columbia Washington Oregon California Nevada Arizona North West Territories Albe rt a Utah Montana New M exico Saskatchewan Id a h o So u th Wyoming Dakota Colorado North Dakota Texas Nunavut Nebraska Manitoba Kansas Oklahoma Ontario Superior Minnesota Io w a Wisconsin Mis sou ri Arkansas Hudson Bay Illinois Gu lf of M exico Baffin B ay Huron Ohio Erie Georgia Quebec N VT Sout h Carolina Newfoundland CO R I Ne w Je r sey IndianaMaryland Atlantic Ocean T HE BA HAM AS Labr ador S ea US gas production s long term decline reversed 7 US gas production by reservoir type to 22 6 bcm (@ MJ/m3) Conventional Tight Gas Shale CBM 11 With growth in shale gas the major contributor Currently Commercial Shale Production Forecast From Key Plays U.S.A. Existing & Emerging Shale 16 W 1 W 12 W 1 W 8 W 6 W W 7 N 2 W Lisburne Vic tori a Island Baffin Island Davis Strait GREENLAN D 2 W bcm (@ MJ/m3) b Barnett Fayetteville Woodford Haynesville Marcellus Horn River Montney 21 1 N 3 N 1 W N 16 W Sierra Nevada Sierra Nevada Mancos Pierre Lewis Colorado Horn BC ShalesRiver/Montney Rocky Rocky Mountains Mountains Baxter Barnett/Woodford CANADA Colorado Group Miss ouri UNITED STATES Woodford/Caney OF AMERICA Woodford Louisiana Mis sissippi Mississippi Antrim Michigan New Albany Woodford Michigan K ent uck y Te nne ss e e Alabama West Virginia Florida Utica Onta rio New York Psnn sy lv an ia Vir gin ia North Carolina CUBA MEXICO 12 W 1 W 8 W Louisiana N H Ma s s. Fayetteville Floyd/Neal/Conasauga Barnett Pearsall Haynesville Ma ine Marcellus Devonian/Ohio (Marcellus) 6 W 3 N N 12 6

7 Russia s future supply output depends on markets and big new projects 8 Russia Sales gas Production Potential (28-22) 7 MJ/m Urengoiskoye & Yamburgskoye & Zapolyarnoye Independents Shtokman Gaz Prom Other Bovanenkovskoye 13 But Europe s decline continues.. European gas production (2-22) 3 3 bc cm (@ MJ/m3) Norway Germany Italy Netherlands United Kingdom Others 1 7

8 Large volumes of LNG from new projects are being introduced into the global gas market over the next few years New Global LNG Capacity Availability From Post FID* Projects 12 1 bcm 8 6 Skikda Rebuild Arzew GL3-Z Qatargas-2 Qatargas-3 Qatargas- RL 3 Sakhalin 2 Yemen LNG Angola Pluto Tangguh Qatar East Russia Indonesia Yemen Peru Australia Algeria Angola Peru LNG *FID: Final Investment Decision Source: Wood Mackenzie LNG Service 1 While Asia s draw on Atlantic Basin LNG has now diminished Atlantic to Pacific Basin LNG Flows (23 - H1 29) bc cm (@ MJ/m3) Lack of supply proximate to Pacific markets necessitated large volumes of LNG to be transported from the Atlantic to meet demand But Atlantic LNG will now need to seek market closer to home H1 29 Algeria Egypt Eq. Guinea Nigeria Trinidad Other Atlantic Source: Wood Mackenzie LNG Service 16 8

9 Agenda 1 The Changing Environment 2 Demand 3 Supply Global Outlook Implications 17 This all has significant implications for Atlantic Basin supply-demand dynamics in the medium term Greater LNG availability to the Atlantic Increased LNG supply, particularly from the Middle East Declining demand for Atlantic LNG from the Pacific Reduced LNG import need into North America Increased availability of indigenous gas Reduced gas demand No need to attract LNG and pay higher netbacks than that available elsewhere Potential for increased Atlantic and Middle East LNG to seek market in Europe instead of North America Potential for oversupply in Europe Reduced gas demand Limited contestable market due to existing long term contracts in Europe Accommodated LNG dependent, in part, upon behaviour of major pipe suppliers into Europe Overspill of LNG into North America 18 9

10 As a result of which LNG imports into North America will grow in the short-term, before declining North America LNG Imports Imp ports bcm (@ MJ/m3) Regas Capacity North America LNG Imports (Base Case) Regas capacity (Base Case) 19 Impact on outlook for global gas price inter-connectivity in medium term 12 1 Annual Global Gas Spot Prices (to 22) Europe prices set by US Japan linked to Atlantic but priced at premium US$ / mmbtu US prices set by breakeven cost of indigenous gas Restraint by major Europe suppliers required to disconnect NBP from US Australian LNG growth softens Asia price premium USA Henry Hub NBP European Oil Indexed Contract Japan 2 1

11 And inter-regional flows increase significantly. Region to region flows (21) Source: Global Gas Tool 21 Agenda 1 The Changing Environment 2 Demand 3 Supply Global Outlook Implications 22 11

12 Market diversification will become more pressing for Russia 3 1 Russian Demand ~38 28 vs 29 Expected Gazprom European Sales Bcm Bcm Actual Sales 29 Expected Sales Pipe sales to NE Asian markets and LNG will become increasingly important to Gazprom growth 23 and Qatar could spoil the Australian LNG party Asia Pacific LNG Demand* & Supply bcm (@ MJ/m3) Although long-term prices in Asia are softening from oil parity levels the supply-demand gap in is still enabling new projects to be launched at favourable pricing levels But if Qatar decides to re-direct Atlantic cargoes to the pacific, this could preclude the need for significant quantities of new Pacific LNG and delay some of the new proposed projects Contracted LNG from Pacific Available Uncontracted Pacific LNG Other Contracted LNG Pre-FID Pacific LNG * Available Pacific supply & demand associated with Asian markets east of India incorporating Japan, Korea, Taiwan, China, Singapore, Thailand, Java LNG Demand (Base Case) 2 12

13 Plus a high oil price - low spot gas price environment will place considerable pressure on existing price levels in European long-term contracts Environment Benign sub US$3/bbl, spot prices < contract prices, over-supplied market High >> US$/bbl, spot prices ~ contract prices, tight market High >> US$/bbl, spot prices << contract t prices, over-supplied market Buyers perception Sellers perception Sellers making reasonable returns Contract prices sufficient for investment, spot prices too low Sellers making high profits on legacy contracts Gas is under-valued compared to oil Contract prices should decrease closer to spot price levels, market prices Desire to protect contract price levels but some sellers seeking floors mbtu US$/m UK NBP Russian Oil Indexed Contract Gas at Brent Parity Brent 2 Brent (U US$/bbl) A number of key moving pieces will impact our base case outcome in the medium term Pricing support from coal displacement Major pipe exporters sales strategy & tactics China & India demand elasticity Pace of production curtailment Global LNG outages Qatar s sales strategy & tactics Pace of global economic recovery Crystallisation of pre-fid LNG projects 26 13

14 Summary The Macro Environment has changed significantly.. Demand has reduced and there is excess gas supply. Some supply conventions have changed.i.e. NA onshore Prices are set to remain weak in the near term But our base case assumes producer restraint and recovery for European and Asian gas prices in the medium term Global Gas Market Implications include. Russia needs to diversify Qatar has a key role in the Pacific market Pressure is likely on long-term European contracts and will have implications for pricing of long-term Pacific contracts For further information visit /energy/globalgas 27 Neil Thomas Head of Gas Research and Regional Director of Asia Wood Mackenzie T E neil.thomas@woodmac.com Neil heads Wood Mackenzie s global research group with responsibility for its regional gas fundamental services (North America, Europe and South East Asia), the Global Gas and LNG teams. Neil also manages the regional operations in Asia, based in Singapore. He joined Wood Mackenzie in 199 and has since worked in a variety of roles within the company in both the research and consulting business. Neil has wide experience of the upstream and downstream gas sectors with specific focus on European issues and has consulted widely in these areas. Projects have included competitor analysis, strategy studies, screening analysis, valuation work and extensive gas market analysis including M&A related projects, purchasing strategies and pricing studies. Neil graduated from Durham University with BSc Honours Degree in Geology followed by MSc in Petroleum Geology from Imperial College, London. 28 1

15 Disclaimer This presentation has been prepared by Wood Mackenzie Limited for delivery at the World Gas Conference October 29. It has not been prepared for the benefit of any particular attendee and may not be relied upon by any attendee or other third party. If, notwithstanding the foregoing, this presentation is relied upon by any person, Wood Mackenzie Limited does not accept, and disclaims, all liability for loss and damage suffered as a result. The information contained in these slides may be retained by attendees. However, these slides and the contents of this presentation may not be disclosed to any other person or published by any means without Wood Mackenzie Limited's prior written permission. 29 1