European Gas Price, Volatility & Security of Supply Dr. Ashna Rahman Head of Analytics & Consulting (EMEA) September, 213. 213 Platts, McGraw Hill Financial. All rights reserved.
Key Points European gas demand has been in decline since 21 but it has been picking up in 213. In recent years the biggest decline has been in gas to power sector. Total European production is in decline. Since 21 European reliance on imported volume has been in sharp rise despite demand destruction. LNG remains the swing factor in the supply mix. Recent months have seen huge price hike and volatility in the European prices. 2
Demand & Production Total Demand vs Domestic Production
Average Daily Volume (MCM/day) Average Daily Volume (MCM/day) Demand & Production Between 21 & 212 total European domestic demand has declined by approximately 12%. During the same period domestic production declined by 15%. The gap between supply and domestic production is met by foreign or imported gas. 6 5 4 3 2 1 1,4 1,2 1, 8 6 4 2 Total European Domestic Production 21 211 212 213 Total European Domestic Demand 21 211 212 213 Source: Bentek 4
Supply Imported Gas
Daily Average Net Volume (MCM/day) Total European Import of Piped Gas 3 Total EU Piped 21-213 EU Piped Imports and LNG Sendout 21 25 25% 16% North African 2 Norwegian 15 Russian 1 26% 33% LNG 5 21 211 212 213 EU Piped Imports and LNG Sendout 213 Russian and Norwegian volumes to Europe has seen an increase (4% higher). So far this year Russia and Norway supplied almost 75% of all foreign gas. 36% 14% 12% 38% North African Norwegian Russian LNG Source: Bentek 6
Going ahead Forecast
MCM/d Demand Forecast 1,2 Total Gas Demand 28-22 1, 8 6 4 2 21 211 212 213 214 215 216 217 218 France Germany Italy Netherlands Spain United Kingdom Production Assuming average European GDP growth at 2% in 218, the total demand should reach around 1 bcm/d similar to 21 level. Domestic production on the other hand will decline by 18% from 21 level. This will mean even bigger (6% higher) reliance on foreign gas. Source: Bentek 8
Price Volatility & Securing Supply Recent trends
Spread $ bbl Euros/MWh Price & Volatility 1 9 8 Average NBP Day Ahead Price (p/th) 6. 4. UK NBP Day-Ahead Price Volatility 21 212 213 7 2. 6 5 4 3 2. -2. -4. -6. 1-8. Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 21 211 212 213 72 7 68 66 64 62 6 NBP Front Month Contracts 118 116 114 112 11 18 16 14 12 September gas p/th October gas p/th November gas p/th Brent crude $/bbl Source: Bentek 1
Volatility & Securing Supply- Infrastructure working harder mcm/d p/th Infrastructure providing huge security of supply by increased capacity utilisation during times of high demand. Interconnector reached 98% of capacity at 7 million cu m on March 2 and delivered a record 1.6 billion cu m to the UK over the month. Total reversal of market dynamics from the winter of 211-12. 8 7 6 5 4 3 2 1-1 UK continental imports, LNG sendout & NBP - Zee Spread 2-2 -4-6 -8-1 -12 LNG Sendouot BBL IUK NBP - ZEE Spread Price Parity 11
mcm/d Volatility & Securing Supply- Infrastructure more price reactive mcm/d /MWh mcm/d p/th /MWh 3 2 1 IUK flows, UK LNG sendout and NBP - Zee Spread 2 2 1-1 -2-3 -4 1-1 -1-2 IUK LNG Sendouot NBP - ZEE Spread 6 Net Dutch-German flows & NCG-TTF spread.7 14 TAG and Transitgas flows with PSV Day-ahead price 3 5 4 3 2 1.6.5.4.3.2.1. 12 1 8 6 4 2 3 2 2 1 1 Net High Cal NCG - TTF Spread TAG Transitgas (TENP) PSV - TTF Spread 12
Storage Inj/With (MCM/day) Volatility & Securing Supply- Infrastructure more price reactive 1-Aug 3-Aug 5-Aug 7-Aug 9-Aug 11-Aug 13-Aug 15-Aug 17-Aug 19-Aug 21-Aug 23-Aug 25-Aug 27-Aug 29-Aug Day-ahead Price (Euros/MWh) mcm/d Storage Inj/With (MCM/day) 1-Aug 3-Aug 5-Aug 7-Aug 9-Aug 11-Aug 13-Aug 15-Aug 17-Aug 19-Aug 21-Aug 23-Aug 25-Aug 27-Aug 29-Aug Day-ahead Price (Euros/MWh) 2. UK Daily Midrange INJ/WITH 212 62. 3 UK Daily Midrange INJ/WITH 213 68 1.. 1-Jul 8-Jul 15-Jul 22-Jul 29-Jul 5-Aug 12-Aug 19-Aug 26-Aug (1.) (2.) (3.) 6. 2 58. 1 56. 54. -1 52. -2 5. -3-4 48. 66 64 62 6 58 56 54 52 5 (4.) 46. Inj/with NBP Day Ahead Inj / Wth NBP Day Ahead Italian Storage Inj/With 212 Italian Storage Inj/With 213-1 -2-3 -4-5 -6-7 28. 27.5 27. 26.5 26. 25.5 25. Italy Storage inj/with Daily - Aug 212 PSV DA - AUG 212-1 -2-3 -4-5 -6-7 -8-9 27.7 27.6 27.5 27.4 27.3 27.2 27.1 27. 26.9 13 Italy Storage inj with Daily - Aug 213 PSV DA - AUG 213
Volatility & Securing Supply LNG remains elusive & became more price sensitive million cu m million cu m $/MMBtu $/MMBtu European LNG Imports Strong Asian prices and demand made Europe a less attractive destination for LNG. 7, 6, 5, 4, 3, 2, 14. 12. 1. 8. 6. 4. In March 213, total LNG sendout in Europe fell to just 86 million cu m/day compared to 17 million cu m/day in January. 1, Spain United Kingdom France Turkey Italy Other NBP 2.. Year-on-year trends shows 33% fall in European LNG sendout in the winter of 212-13 in comparison to the significantly milder winter of 211-12. Going ahead Europe needs to maintain strong price level in order to compete in global LNG market for its share of cargo. 7 6 5 4 3 2 1 European LNG Re-Exports 2 18 16 14 12 1 8 6 4 2 Belgium France Portugal Spain NBP MA JKM 14
Conclusion Fundamental shifts in European gas market dynamics. Price levels are adjusted higher in order to secure supply. Infrastructure (pipeline, storages) providing more crucial through greater capacity utilisation than ever before and has become more price sensitive. Price volatility is back in the game. 15