Global Gas and LNG in Flux Michael Smith, Gas Trading Analytics BIEE Gas Outlook Seminar, th October 211
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Presentation outline Recent developments in key markets regional supply/demand LNG supply/demand price signals Market outlook Conclusions
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
HDDs vs. year normal Weather was a key driver of strong 2 demand, especially in Europe 5 4 3 2 Asia LNG North America Europe* Colder than normal - -2-3 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
y-o-y change (bcf/d) Strong US production growth from 2Q 2 absorbed in the domestic market and via lower net gas imports 8 6 4 2-2 -4-6 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
y-o-y change (bcf/d) Supply flexibility in evidence throughout the cycle in the European* gas market 8 6 4 2-2 -4-6 -8 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
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,
UK supply stack, bcm LNG became the second largest source of supply to the UK market in 1H 211 35 UKCS production Norway Other Pipe LNG Storage 3 25 2 15 5-5 - Q9 Q29 Q39 Q49 Q1 Q2 Q3 Q4 Q111 Q211 * Other imports includes exchange with Belgium, the Netherlands and Ireland Source: UK DECC
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
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 5 4 3 2 1-1 -2-3 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
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 12 8 6 4 2-2 -4 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
$/mmbtu NBP shows clear divergence vs. Henry Hub but still trading in coal switching range and below AGIP 18 16 FSP band Henry Hub (26 Sep 11) NBP (26 Sep 11) AGIP 14 12 8 6 4 2 28 29 2 211 212 213 214 215 Source: ICE, NYMEX, BAFA,
Gas share of thermal power gen. Higher UK price feeding back into demand: gas share of thermal power lower in 1H 211 74% 7% 66% 62% 2 29 58% 28 54% 5% 211 46% 42% Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Source: DECC
Outlook
Forecast growth (%) IMF economic forecasts for Europe and USA downgraded in September but strong growth still forecast for Non-OECD 9 8 7 6 5 4 3 2 1 Oct- Apr-11 Sep-11 World OECD Non- OECD EU Japan USA Dev. Asia Source: IMF
yera MA RRR year moving average gas reserve replacement vs. production & consumption: Europe 18% 16% 14% 12% % 8% 6% 4% 2% % 199 1992 1994 1996 1998 2 22 24 26 28 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)
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% 9 75 11.3 Earth Quake 6% 5% 6 45 3 15 Installed capacity ~5GW (LHS) Available capacity, GW (LHS) 4% 3% 2% % 28 29 2 211 % Source: Japan METI
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 5 4 3 2 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
y-o-y change in capacity (mtpa) Expected LNG capacity additions (adjusted for month of start-up) fall sharply during 212-14, prior to next wave of supply Commissioned and under construction projects only 45 4 35 3 25 2 15 5-5 Algeria Indonesia Qatar USA Peru PNG Australia Malaysia Russia Angola Yemen 29 2 211e 212e 213e 214e 215e 216e 217e 218e 2 saw highest ever LNG capacity additions. Momentum carries over into 211 Net capacity additions 212-14 average only 5 mtpa vs. >25 mtpa 29-11 Element of delay built into new wave of Australia/PNG projects given complexity and recent experience Source: project public announcements
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% 28 29 2 211 Source: Waterborne Report
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 212-14 followed by new wave of supply, mostly from Australia Global LNG market is cyclical and prone to shocks, highlighting value of growing flexibility