outlook for gas marketeneken.ieej.or.jp/data/6890.pdf · in china, gas demand has maintained an...
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Outlook for Gas Market
The Institute of Energy Economics, Japan
Yoshikazu Kobayashi
Senior Economist, Manager, Gas Group,
Fossil Fuels & Electric Power Industry Unit
423rd Forum on Research Works on July 26, 2016
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Key points of this report
1
Oversupply in the international LNG market will expand further in the coming
years.
Upstream industry is cutting capital spending. A major matter of concern is that
the investment slump could lead the supply-demand balance to tighten over a
long term. It will be important to smoothly launch new LNG projects in Canada,
Eastern Africa and other regions.
LNG has begun to be exported from the lower 48 of the U.S.. While no explicit
impact has been seen in the Asian market yet, expectations are placed on the
improvement of liquidity and the creation of pricing benchmarks in the Asian
market.
The improvement of trading flexibility is a major precondition for developing an
LNG trading hub in Asia. A flexible, liquid market will contribute to the sound
development of the natural gas market and the improvement of supply security.
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Trends of major natural gas prices
European and Asian natural gas prices are going in the direction of convergence.
The Asian premium has almost diminished.
The U.S. market price trend has been independent from European and Asian trends.
2 Source: Prepared from various data
Natural gas import price trends in major countries
0
5
10
15
20
25
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
$/mmbtu
Japan
UK
Germany
US
NE Asia spot LNG
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Global natural gas demand
Global natural gas demand has continued growing at a slower pace than expected.
Natural gas still has great supply potential.
Due to overall energy demand deceleration following an economic slowdown in emerging countries,
slack natural gas demand amid growing coal and renewable energy power generation, high gas prices
indexed to oil prices and other demand-side factors, however, the gas market has failed to expand as
earlier expected.
3
Global natural gas demand changes
(year on year)
Source: IEA
2011 demand outlook for 2015 and
actual data
Source: BP
-150
-100
-50
0
50
100
150
200
250
2007 2009 2011 2013 2015
Bcm
Others
Latin America
Africa
Middle East
Other Asia
Japan
China
FSU
Europe
US
Total841 852 970
574 604 490
200 198 218
755 698 653
576 531 493
428 402 441
139112 124
172168 167
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
WEO2011 Golde Age of Gas Scenario
WEO2011 New Policy Scenario
実績
Bcm
Latin America
Africa
Middle East
non-OECDAsia
Non-OECDEurope
OECDAsia Oceania
OECD Europe
OECD Americas
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Gas demand in developed countries
European and U.S. natural gas demand trends differ from each other.
In the United States, a gas price plunge under the shale revolution has contributed much to expanding gas
consumption in the power generation sector.
In Europe, natural gas demand had continued falling mainly in the power generation sector due to an economic
slump, weather factors and competition from coal and renewable energy before recovering slightly in 2015.
Given the United Kingdom’s global gas market share (2.0%) and the period (at least two years) for its exit from the
EU, Brexit may have only limited impacts on the international gas market for the immediate future.
4
U.S. natural gas demand
Source: Eurostat
European natural gas demand
(19 EU members)
Source: EIA
0
100
200
300
400
500
600
700
800
2000 2002 2004 2006 2008 2010 2012 2014
Bcm
Transportation
Industry
Commercial
Residential
Powergeneration
0
50
100
150
200
250
300
350
400
2000 2003 2006 2009 2012 2015
Bcm
Total
Other
Commercial
Residential
Transportation
Industry
Powergeneration
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Gas demand in emerging countries
In China, gas demand has maintained an uptrend while decelerating on an economic slump.
Indian gas demand has bottomed out after a slump and is expected to increase in the future.
Major factors behind gas demand growth are a decline in international LNG prices and rising demand for gas for fertilizers.
The Chinese and Indian markets have great demand growth potential for the future.
According to the IEA, China and India will account for 47% of global gas demand growth (341 Bcm) in the next five years.
At present, demand in China and India is the only factor that can change the current LNG supply and demand trend.
5
Chinese natural gas demand changes
(year on year)
Source: BP
Indian natural gas demand changes
(year on year)
Source: BP
0
5
10
15
20
25
30
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Bcm
-10
-8
-6
-4
-2
0
2
4
6
8
10
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Bcm
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Global natural gas supply
While Russia and Europe have reduced gas supply, rising production in the United States, the Middle East and Asia has
driven global supply growth.
Production has increased in Iran and Qatar among Middle Eastern countries and in Australia among Asian-Oceanian countries.
Global natural gas trade has turned upward, though with LNG trade stagnating.
LNG’s share of natural gas trade has fallen to 32%.
6
Global natural gas supply changes
(year on year)
Source: BP
Global natural gas trade
Source: BP
-60
-40
-20
0
20
40
60
80
100
120
140
2011 2012 2013 2014 2015
BcmOthers
Latin AmericaAfrica
Middle EastOther Asia
China
Russia
Europe
US
Total
32%
0%
5%
10%
15%
20%
25%
30%
35%
0
200
400
600
800
1,000
1,200
1991 1996 2001 2006 2011
Bcm
Pipeline
LNG
LNG %
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Large LNG projects launching production
New projects with a total capacity of more than 30 million tons are expected to launch production in
2016.
Large projects will launch production in 2017 and 2018 mainly in the United States and Australia.
However, the current oversupply may prompt some projects to delay start-up.
7
New projects through 2018
Source: Media reports, company releases, etc.
Country ProjectCapacity
(mtpa)Partners Start up
Angola Angola LNG 5.2 Sonangol, Chevron, Total, Eni, BP 2016
Australia Gladstone LNG 3.9 Santos, Petronas, Total, Kogas 2016
Australia Gorgon T1 5.2 Chevron, Shell, Exxon Mobil 2016
Australia Australia Pacific LNG 4.5 Origin, ConocoPhillips, Sinopec 2016
United States Sabine Pass (T2) 4.5 Cheniere Energy 2016
Australia Gorgon (T2) 5.2 Chevron, Shell, Exxon Mobil 2016
Indonesia Sengkang LNG 2.0 Energy World Corporation 2016
Malaysia MLNG T9 3.6 Petronas 2016
Malaysia PFLNG SATU 1.2 Petronas, MISC 2017
Australia Wheatstone LNG 8.9 Chevron, Apache, KUFPEC 2017
Australia Gorgon (T3) 5.2 Chevron, Shell, Exxon Mobil 2017
United States Cove Point LNG 5.3 Dominion 2017
United States Sabine Pass (T3-T4) 9.0 Cheniere Energy 2017
Cameroon Cameroon FLNG 1.2 SNH, Perenco, Golar 2017
Russia Yamal LNG (T1-T3) 16.5 Novatek, Total 2017
Australia Prelude FLNG 3.6 Shell, Inpex, Kogas, CPC 2018
Australia Ichthys LNG (T1-T2) 8.9 Inpex, Total 2018
United States Freeport LNG (T1-T3) 13.2 Freeport, Macquarie 2018
United States Corpus Christi LNG (T1-T2) 9.0 Cheniere Energy 2018
United States Sabine Pass (T5) 4.5 Cheniere Energy 2018
United States Cameron LNG (T1) 4.0 Sempra Energy 2018
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U.S. natural gas supply
Production growth has slowed down but will recover toward 2017 again.
Weak Henry Hub prices have had no major impact on U.S. natural gas production.
In February 2016, LNG export from the U.S. mainland started. Through 2020, more than 60 million tons of
LNG without restrictions on destinations will be exported from the U.S. mainland.
The U.S. LNG export has exerted no explicit impact on the Asian market but is expected to improve future international
LNG market liquidity and help create pricing benchmarks.
Meanwhile, the current oversupply may be making it difficult for LNG facilities to operate at their full capacity.
8
EIA outlook for U.S. natural gas
production changes
Source: EIA
U.S. LNG projects
Source: EIA STEO
-1.5
2.1
-3.5 -2.1
51.2
37.6
11.7
20.5
(10)
0
10
20
30
40
50
60
2014 2015 2016 2017
Bcm
Production growth(GoM)
Production growth(non-GoM)
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Russian natural gas supply
Natural gas exports to Europe via pipelines had plunged in the wake of the Lehman
Shock before recovering recently.
Europe with expanding gas import demand will remain a major market for Russia. Given
competition from renewable energy, coal, and U.S. and other LNG, however, Russia
may be required to set competitive prices for natural gas exports.
9
Russian gas export volume changes
Source: IEA MTGMR
Future European gas supply-demand balance
Source: BP
0
20
40
60
80
100
120
140
160
180
2006 2008 2010 2012 2014
Bcm
Other
Turkey
Poland
Italy
Germany
France
Belgium
Austria
182
238256
269
0
100
200
300
400
500
600
2015 2017 2019 2021
Bcm
Demand
Supply
Net import
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Spot and short-term contract transaction
trends In the international LNG market, spot and short-term contract transactions have stagnated in response to
weak demand.
Trinidad and Tobago, Russia and Nigeria have remained major LNG suppliers for spot transactions.
As LNG production free from long-term contracts increases in the future, spot transactions are expected to expand due
to supply-side factors.
10
Global spot and short-term contract
transactions
Source: ICIS
Global spot cargo exports
Source: GIIGNL
Trinidad & Tobago, 63
Russia/Europe, 60
Nigeria, 56
Others, 42
Asia, 34
Middle East, 33
Total 332 cargoes
(2015 Actual)
28%
0%
5%
10%
15%
20%
25%
30%
35%
0
10
20
30
40
50
60
70
80
2000 2003 2006 2009 2012 2015
million tonsMiddle EastLatin AmericaNorth AmericaEurope
Other Asia
China
India
Taiwan
Korea
Japan
Spot/short-term %
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Slumping investment and future projects
Crude oil price plunges have led oil companies to continuously reduce capital spending.
Oil majors look for new business models, while small and medium-sized oil companies struggle to repay debt.
As uncertainties grow about LNG demand, investment decisions are expected to be delayed on new
projects.
A major matter of concern is that the investment slump could lead the supply-demand balance to tighten over a long term.
It will be important to timely launch projects under planning particularly in Canada and Eastern Africa.
11
International oil majors’ capital
spending trends
Source: IEEJ
LNG projects under planning (reference)
Planned amounts for 2016 include capital spending on the downstream
sector. *Including BG (British Gas) spending.
Sources: Annual reports of these companies
35
40.338.5
26.4
22.9
28.9
34
31.1
23
18.7
33
26.6
23.2
20.5
17
0
5
10
15
20
25
30
35
40
45
Shell* Chevron ExxonMobil Total BP
$ Bn2014 2015 2016
0
50
100
150
200
250
300
350
400
2015 2020 2025 2030
million tonnes
Other
Russia
Australia
SE Asia
Iran
East Africa
West Africa
Canada
US
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Outlook for international LNG supply-demand
balance Oversupply may expand further
Large projects will be launched one after another in the United States and Australia.
Some projects may be forced to delay production launches or adjust capacity utilization ratios.
Important factors for projecting future demand are the trend of the world economy including emerging
economies and energy policy measures such as the enhancement of price competitiveness against other
fuels and infrastructure development.
Europe will increase LNG demand as the final receiver of surplus LNG for supply-side reasons.
12
Source: IEEJ
Short-term global LNG
demand and projected
supply capacity 245262 268
288282
336
0
50
100
150
200
250
300
350
400
Demand Capacity Demand Capacity Demand Capacity
2015 (actual) 2016 (forecast) 2017 (forecast)
million tonnes
Africa
Americas
US
FSU
Europe
Middle East
Asia Pacif ic
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Outlook for natural gas prices
13
Following is an outlook for the average price of LNG arriving in Japan from the second half of 2016 through 2017:
Details of outlook for prices
Overall LNG import prices are forecast to increase as prices for long-term LNG import contracts rise in response to a crude oil price recovery.
Given that orders from emerging LNG importers will increase while the LNG supply-demand balance will further loosen and that spot prices may be susceptible to changes in the benchmark European (NBP) price and long-term contracts prices, spot prices are forecast to weaken to a $4.5-5.5/mmbtu range.
As a result of the above forecast price changes, a gap between long-term contract and spot prices is likely to expand.
Price 1st half 2016
(Actual data)
2nd half 2016
(Forecast)
2017
(Forecast)
LNG arriving in
Japan $7.0 $6.6 $7.4
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Developing an LNG trading hub
Japan published the Strategy for LNG Market Development in May 2016, seeking to procure cheaper and
flexibly available LNG.
Top priority is given to relaxing or repealing destination clauses in LNG contracts. A flexible, thick market would
contribute to finding appropriate natural gas price levels and improving natural gas security.
Moves for developing a trading hub
The Tokyo Commodity Exchange opened an LNG OTC market at the Japan OTC Exchange in September 2014.
In January 2016, the Singapore Exchange launched futures and swaps on Singapore’s new price index for LNG (SGX
LNG Index Group: SLInG).
In the future, it will be important to invigorate spot transactions through the improvement of transaction
flexibility and benchmark prices’ reliability and the standardization of trading terms and conditions.
14
Specific actions under the Strategy for
LNG Market Development
Source:SGX
Singapore SLInG price changes
Source: Ministry of Economy, Trade and Industry
1. Relaxing or eliminating restrictions on resale (under destination
clauses) in contracts
2. Implementing public financing contributing to launching projects and
developing a market smoothly
3. Expanding gas/LNG demand to thicken the LNG market
4. Quick LNG delivery
5. Realizing a benchmark price reflecting Japanese LNG demand
6. Expanding LNG terminal, underground storage and pipeline capacity
available for third parties’ delivery and transactions
7. Enhancing collaboration between LNG consuming and producing
countries
8. Continuing dialogue with private sector players
9. Future reviews and continuous consideration
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