Natural gas Global gas outlook
Natural gas
Global gas outlook Trevor Sikorski, September 2016
Global gas outlook
NATURAL GAS (1/10)
Gas pricing – Increasing convergence Global gas pricing
Asian LNG and contracts
$/mmbtu
$/mmbtu
25
Japan
India
UK
US
Spot JK
16%
12%
20
20
15
15
10
10
5
5
0
0 Jan 14 Jul 14 Jan 15 Jul 15 Jan 16 Jul 16
14
15
16
Global prices seeing a higher degree of convergence, with Northeast Asia at much smaller premiums to Europe Source: Reuters, Energy Aspects
3
25
Natural Gas outlook
After price corrections, loose market means that spot has fallen with the declines in contract gas prices
NATURAL GAS (2/10)
Supply increments just starting but prices are low... Incremental Liquefaction Mt
Country
Plant
Train
Capacity (M t)
Start date
N otes
Australia USA
APLNG
1
Sabine Pass
1
4.5
Jan-16
Operational
4.5
Mar-16
Angola
Angola
Operational
1
5.2
May-16
Australia
Operational
Gorgon
1
5.2
Jun-16
Operational
Australia
Gladstone
2
3.9
Jun-16
Slow ramp, loading May
Malaysia
PFLNG
1
1.2
Jul-16
Sabine Pass
2
4.5
Sep-16
Gorgon
2
5.2
Dec-16
APLNG
2
4.5
Nov-16
Petronas MLNG
9
3.6
Jan-17
Gorgon
3
5.2
Apr-17
Sabine Pass
3
4.5
Apr-17
Wheatstone
1
4.4
Jul-17
FLNG
1
1.2
Q2 17
Icthys
1
4.4
Q3 17
Yamal
1
5.5
Q3 17
Sabine Pass
4
4.5
Aug-17
Wheatstone
2
4.4
Dec-17
Prelude
1
3.6
Q3 17
Cove Point
1
5.3
Q4 17
Icthys
2
4.4
Q4 17
Sabine Pass (USA) Australia Angola Australia Total 2016 Prelude (Aus) Malaysia Australia Ichthys (Aus) USA Petronas T9 (Mal) Australia Cameroon Wheatstone (Aus) Australia Russia Arzew (Alg) USA Australia Bintulu (Mal) Australia Donggi-Senoro (Ind)USA Australia APLNG (Aus) Total 2017 Gladstone (Aus) Russia USA Russia Gorgon (Aus) Malaysia USA Q. Curtis (Aus) USA PNG LNG USA USA
25 20 15 10 5 0 Q2 14
Q2 15
Q2 16
Q2 17
39
Source: Company reports, Energy Aspects
4
Natural Gas outlook
Delayed Delayed
Delayed
51 Yamal
2
5.5
Q1 18
Cameron
1
4
Q1 18
Yamal
3
5.5
Q3 18
PFLNG
2
1.2
Q3 18
Cameron
2
4
Q3 18
Freeport
1
4.4
Q3 18
Cameron
3
4
Q4 18
Total 2018
Liquefaction expanding rapidly mid-decade—adding at least 150 Mtpa by 2020. Current capacity is 300 Mtpa
Delayed to Q4 16
29
USA
Freeport
2
4.4
Q1 19
USA
Sabine Pass
5
4.5
Q1 19
USA
Corpus Christi
1
4.5
Q1 19
USA
Freeport
3
4.4
Q3 19
USA
Corpus Christi
2
4.5
Q3 19
Total 2019
22
Total 16 to 19
141
Delayed indefinately
NATURAL GAS (4/10)
How does the market balance? 3
10 85
40
33
+60
20
90
10 5
15
15 35 5
3 Demand Mtpa
Supply Mtpa Source: Energy Aspects
5
Natural Gas outlook
4
45
+50 44
NATURAL GAS (4/10)
How does the market balance? 3
10 85
40
33
+60
20
90
10 5
15
15 35 5
3
+50
4
44
Demand Mtpa
Supply Mtpa Source: Energy Aspects
6
Natural Gas outlook
45
1 - Qatari spot pushed out of Asia
NATURAL GAS (4/10)
How does the market balance? 3
10 85
40
33
+60
20
90
10 5
15
15 35 5
3
+50
4
44
Demand Mtpa
Supply Mtpa Source: Energy Aspects
7
Natural Gas outlook
45
1 - Qatari spot pushed out of Asia 2 - NA pushed out of Asia
NATURAL GAS (4/10)
How does the market balance? 3
10 85
40
33
+60
20
90
10 5
15
15 35 5
3
+50
4
44
Demand Mtpa
Supply Mtpa Source: Energy Aspects
8
Natural Gas outlook
45
1 - Qatari spot pushed out of Asia 2 - NA pushed out of Asia 3 - NA pushed out of Europe
NATURAL GAS (3/10)
Europe - the residual LNG taker EU: gas imports versus terminal capacity
EU: fuel switching capacity
Mt
bcm
80
Unused Cap
20
Im ports
15
70 60 50
10
40 30
5
20 10
Plenty of capacity, with around 160 bcm/y of unused regas— maybe 120 bcm is realistic factoring in maintenance Source: Bloomberg, Energy Aspects
9
Natural Gas outlook
Greece
Iberia
Italy
Pol, Hun, Cze
Deu, Aus
Bel, Net, Fra
NW Europe
Iberia
Greece
Italy
Poland
Lithuania
Netherlands
France
Belgium
UK
0
GB
0
Plenty of latent power sector demand to stimulate…about 90 bcm in total. Actual realisable around 70 bcm
NATURAL GAS (5/10)
Global balances – point to market only balancing with Europe taking more…. Global balances Mt Mt
y/ y M t
y/ y %
2015
2016F
2017F
2018F
2015
2016F
2017F
2018F
2015
2016F
2017F
2018F
Austr al-Asia
80.3
98.6
123.4
147.1
9.0
18.3
24.8
23.7
13%
23%
25%
19%
Middle East
89.5
86.9
91.6
91.9
(6.0)
(2.6)
4.7
0.3
(6%)
(3%)
5%
0%
Afr ica
32.9
31.5
36.0
37.6
(1.4)
(1.4)
4.5
1.6
(4%)
(4%)
14%
4%
Eur ope
15.9
14.7
14.8
23.4
(2.1)
(1.3)
0.2
8.6
(12%)
(8%)
1%
58%
Am er icas
15.4
17.6
33.3
19.3
(3.0)
2.2
15.6
(14.0)
(16%)
14%
89%
(42%)
234.1
249.3
299.1
319.4
(3.5)
15.2
49.8
20.3
(1%)
6%
20%
7%
170.4
176.4
179.9
185.6
(4.1)
6.0
3.5
5.7
(2%)
4%
2%
3%
Eur ope
40.1
43.6
82.2
92.6
2.2
3.5
39
10
6%
9%
89%
13%
Latin Am er ica
18.3
14.9
14.3
15.0
(2.1)
(3.5)
(0.6)
0.7
Nor th Am er ica
2.2
2.2
2.2
2.2
0.6
0.0
Middle East
9.5
16.8
20.4
24.0
5.4
7.3
3.7
240.5
253.8
299.0
319.4
2.0
13.3
45.3
Expor t s
Tot al Im por t s Asia
Tot al
-
Global market can only balance with Europe taking more… a maximum 70 bcm more
Source: Cheniere, Energy Aspects
10
Natural Gas outlook
-
(10%)
(19%)
(4%)
5%
36%
1%
-
-
3.6
134%
77%
22%
18%
20.4
1%
6%
18%
7%
NATURAL GAS (6/10)
Gas pricing: implications
Lever
Implication
1 - Qatari spot pushed out of Asia
Northeast Asia at a discount to NBP
2 - NA pushed out of Asia
Northeast Asia no more than HH + 2.5 $/mmbtu
3 - NA pushed out of Europe
Northwest Europe no more than HH + 1.0 $/mmbtu
Henry Hub
2.00
2.50
3.00
3.50
4.00
4.50
5.00
6.00
Liq. Variable (15%)
0.30
0.38
0.45
0.53
0.60
0.68
0.75
0.90
Transport
0.50
0.50
0.50
0.50
0.50
0.50
0.50
0.50
Regas. Variable (6%)
0.17
0.20
0.24
0.27
0.31
0.34
0.38
0.44
N BP
2.97
3.58
4.19
4.80
5.41
6.02
6.63
7.84
N BP (p/ therm )
22.2
26.8
31.3
35.9
40.5
45.0
49.6
58.7
TTF (€/ MWh)
9.0
10.8
12.7
14.5
16.4
18.2
20.0
23.7
$/ £
1.34
€/ $
1.13
Global price will start being driven by the arb with Henry Hub
Source: Energy Aspects
11
Natural Gas outlook
NATURAL GAS (7/10)
Europe: What about Gazprom?
Options available
Implication for Europe
1
Increase current levels of production
Prices towards fuel switch.
2
Maintain current levels of production
3
Cut current levels of production
HH prices least impacted.
EU buys least NA LNG = 1 bcf/d Prices towards fuel switch.
Some upward pressure on HH.
EU buys less NA LNG = 2.5 bcf/d Prices towards fuel switch.
Greater upwards pressure on HH.
EU buys most NA LNG = 5 bcf/d
Russia export Volum e opt ion
Implication for US
St rat egy
Fuel swit ch
y/ y change
Call on LNG
bcm
bcm
bcm
bcf/ d
Call on NA
Reduce (high)
Active decision to cut additional volumes.
(25)
95
40
3.9
Reduce (low)
No decision. Nominations fall.
(10)
80
25
2.4
Maintain
Offset nomination reductions by hub sales.
0
70
15
1.5
Increase
Sell more gas at hub.
15
55
10
1.0
12
Natural Gas outlook
Will Gazprom cut production to support drilling activity in NA?
NATURAL GAS (8/10)
What about the fuel switch: how low can coal go? Coal prices and the importance of oil
EU continental fuel switch
$/t
bcm/q, p/therm
9
Winter Q 55 $/t
8
Winter Q 45 $/t
7
Winter Q 40 $/t
6 5 4 Expected range of Henry Hub to Europe
3 2 20
Softness in global coal markets and cost reducing impact of oil makes fuel-switching more elusive
22.5
25
27.5
13
Natural Gas outlook
35
40
Key dynamic will be the interaction between where the arb closes and where the fuel switching lies Assumes HH at 2.7 to 3.3 $/mmbtu
Source: Reuters, CTI, Energy Aspects
30
NATURAL GAS (9/10)
Any evidence this is happening now? Gas prices- NBP is already fully in the money
Gas prices- TTF supported at first switching level
p/therm
€/MWh
80
NBP D+1
56% v 30%
50% v 30%
45% v 34%
60
20
40
15
20
10
0 Jan 14
Jul 14
Jan 15
Impact of carbon “price floor” tax
Source: Fearnelys, Energy Aspects
14
25
Natural Gas outlook
Jul 15
Jan 16
Jul 16
5 Jul 15
TTF D+1 45% v 30%
Oct 15
Jan 16
50% v 30% 45% v 34%
Apr 16
Jul 16
While this episode might not last into Q4, it is a warning of what is to come.
NATURAL GAS (10/10)
US prices at lower levels…production growth is plateauing Dry gas production
Henry Hub spot price
Bcf/d
$/mmbtu
2016
7
2015
2014
6
74
5
72
2016
2015
2014
70
4
68
3
66
2
64
1
62
0
60
Jan
Apr
Jul
Oct
2015 prices were down by around 40% on 2014 price levels, despite another cold winter in Q1 15 Source: EIA, Energy Aspects
15
76
Natural Gas outlook
Jan
Mar
May
Jul
Sep
Nov
2016 production slowing and showing signs of y/y reductions
CONCLUSION (1/1)
Conclusions: Prices to stay low for long
Q1 UK N BP
Q3
Q4
Annual
y/ y % change
p/therm
2015
48.1
44.8
41.4
37
42.7
(14.7%)
2016
30.5
31.4
29.9
35.4
31.8
(25.6%)
2017
36.3
31.0
31.0
34.7
33.2
4.5%
2018
35.8
29.0
29.0
30.7
31.1
(6.3%)
N etherlands TTF
€/MWh
2015
21.4
21.0
19.9
12.2
18.6
(11.1%)
2016
12.9
13.2
12.8
14.1
13.2
(29.0%)
2017
14.6
12.7
12.7
13.9
13.5
1.8%
2018
14.4
11.9
11.9
12.3
12.6
(6.3%)
Source: EIA, Energy Aspects
16
Q2
Natural Gas outlook
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18
Natural Gas outlook
Global gas outlook Trevor Sikorski, September 2016
Global gas outlook
NATURAL GAS (1/10)
Gas pricing – Increasing convergence Global gas pricing
Asian LNG and contracts
$/mmbtu
$/mmbtu
25
Japan
India
UK
US
Spot JK
16%
12%
20
20
15
15
10
10
5
5
0
0 Jan 14 Jul 14 Jan 15 Jul 15 Jan 16 Jul 16
14
15
16
Global prices seeing a higher degree of convergence, with Northeast Asia at much smaller premiums to Europe Source: Reuters, Energy Aspects
3
25
Natural Gas outlook
After price corrections, loose market means that spot has fallen with the declines in contract gas prices
NATURAL GAS (2/10)
Supply increments just starting but prices are low... Incremental Liquefaction Mt
Country
Plant
Train
Capacity (M t)
Start date
N otes
Australia USA
APLNG
1
Sabine Pass
1
4.5
Jan-16
Operational
4.5
Mar-16
Angola
Angola
Operational
1
5.2
May-16
Australia
Operational
Gorgon
1
5.2
Jun-16
Operational
Australia
Gladstone
2
3.9
Jun-16
Slow ramp, loading May
Malaysia
PFLNG
1
1.2
Jul-16
Sabine Pass
2
4.5
Sep-16
Gorgon
2
5.2
Dec-16
APLNG
2
4.5
Nov-16
Petronas MLNG
9
3.6
Jan-17
Gorgon
3
5.2
Apr-17
Sabine Pass
3
4.5
Apr-17
Wheatstone
1
4.4
Jul-17
FLNG
1
1.2
Q2 17
Icthys
1
4.4
Q3 17
Yamal
1
5.5
Q3 17
Sabine Pass
4
4.5
Aug-17
Wheatstone
2
4.4
Dec-17
Prelude
1
3.6
Q3 17
Cove Point
1
5.3
Q4 17
Icthys
2
4.4
Q4 17
Sabine Pass (USA) Australia Angola Australia Total 2016 Prelude (Aus) Malaysia Australia Ichthys (Aus) USA Petronas T9 (Mal) Australia Cameroon Wheatstone (Aus) Australia Russia Arzew (Alg) USA Australia Bintulu (Mal) Australia Donggi-Senoro (Ind)USA Australia APLNG (Aus) Total 2017 Gladstone (Aus) Russia USA Russia Gorgon (Aus) Malaysia USA Q. Curtis (Aus) USA PNG LNG USA USA
25 20 15 10 5 0 Q2 14
Q2 15
Q2 16
Q2 17
39
Source: Company reports, Energy Aspects
4
Natural Gas outlook
Delayed Delayed
Delayed
51 Yamal
2
5.5
Q1 18
Cameron
1
4
Q1 18
Yamal
3
5.5
Q3 18
PFLNG
2
1.2
Q3 18
Cameron
2
4
Q3 18
Freeport
1
4.4
Q3 18
Cameron
3
4
Q4 18
Total 2018
Liquefaction expanding rapidly mid-decade—adding at least 150 Mtpa by 2020. Current capacity is 300 Mtpa
Delayed to Q4 16
29
USA
Freeport
2
4.4
Q1 19
USA
Sabine Pass
5
4.5
Q1 19
USA
Corpus Christi
1
4.5
Q1 19
USA
Freeport
3
4.4
Q3 19
USA
Corpus Christi
2
4.5
Q3 19
Total 2019
22
Total 16 to 19
141
Delayed indefinately
NATURAL GAS (4/10)
How does the market balance? 3
10 85
40
33
+60
20
90
10 5
15
15 35 5
3 Demand Mtpa
Supply Mtpa Source: Energy Aspects
5
Natural Gas outlook
4
45
+50 44
NATURAL GAS (4/10)
How does the market balance? 3
10 85
40
33
+60
20
90
10 5
15
15 35 5
3
+50
4
44
Demand Mtpa
Supply Mtpa Source: Energy Aspects
6
Natural Gas outlook
45
1 - Qatari spot pushed out of Asia
NATURAL GAS (4/10)
How does the market balance? 3
10 85
40
33
+60
20
90
10 5
15
15 35 5
3
+50
4
44
Demand Mtpa
Supply Mtpa Source: Energy Aspects
7
Natural Gas outlook
45
1 - Qatari spot pushed out of Asia 2 - NA pushed out of Asia
NATURAL GAS (4/10)
How does the market balance? 3
10 85
40
33
+60
20
90
10 5
15
15 35 5
3
+50
4
44
Demand Mtpa
Supply Mtpa Source: Energy Aspects
8
Natural Gas outlook
45
1 - Qatari spot pushed out of Asia 2 - NA pushed out of Asia 3 - NA pushed out of Europe
NATURAL GAS (3/10)
Europe - the residual LNG taker EU: gas imports versus terminal capacity
EU: fuel switching capacity
Mt
bcm
80
Unused Cap
20
Im ports
15
70 60 50
10
40 30
5
20 10
Plenty of capacity, with around 160 bcm/y of unused regas— maybe 120 bcm is realistic factoring in maintenance Source: Bloomberg, Energy Aspects
9
Natural Gas outlook
Greece
Iberia
Italy
Pol, Hun, Cze
Deu, Aus
Bel, Net, Fra
NW Europe
Iberia
Greece
Italy
Poland
Lithuania
Netherlands
France
Belgium
UK
0
GB
0
Plenty of latent power sector demand to stimulate…about 90 bcm in total. Actual realisable around 70 bcm
NATURAL GAS (5/10)
Global balances – point to market only balancing with Europe taking more…. Global balances Mt Mt
y/ y M t
y/ y %
2015
2016F
2017F
2018F
2015
2016F
2017F
2018F
2015
2016F
2017F
2018F
Austr al-Asia
80.3
98.6
123.4
147.1
9.0
18.3
24.8
23.7
13%
23%
25%
19%
Middle East
89.5
86.9
91.6
91.9
(6.0)
(2.6)
4.7
0.3
(6%)
(3%)
5%
0%
Afr ica
32.9
31.5
36.0
37.6
(1.4)
(1.4)
4.5
1.6
(4%)
(4%)
14%
4%
Eur ope
15.9
14.7
14.8
23.4
(2.1)
(1.3)
0.2
8.6
(12%)
(8%)
1%
58%
Am er icas
15.4
17.6
33.3
19.3
(3.0)
2.2
15.6
(14.0)
(16%)
14%
89%
(42%)
234.1
249.3
299.1
319.4
(3.5)
15.2
49.8
20.3
(1%)
6%
20%
7%
170.4
176.4
179.9
185.6
(4.1)
6.0
3.5
5.7
(2%)
4%
2%
3%
Eur ope
40.1
43.6
82.2
92.6
2.2
3.5
39
10
6%
9%
89%
13%
Latin Am er ica
18.3
14.9
14.3
15.0
(2.1)
(3.5)
(0.6)
0.7
Nor th Am er ica
2.2
2.2
2.2
2.2
0.6
0.0
Middle East
9.5
16.8
20.4
24.0
5.4
7.3
3.7
240.5
253.8
299.0
319.4
2.0
13.3
45.3
Expor t s
Tot al Im por t s Asia
Tot al
-
Global market can only balance with Europe taking more… a maximum 70 bcm more
Source: Cheniere, Energy Aspects
10
Natural Gas outlook
-
(10%)
(19%)
(4%)
5%
36%
1%
-
-
3.6
134%
77%
22%
18%
20.4
1%
6%
18%
7%
NATURAL GAS (6/10)
Gas pricing: implications
Lever
Implication
1 - Qatari spot pushed out of Asia
Northeast Asia at a discount to NBP
2 - NA pushed out of Asia
Northeast Asia no more than HH + 2.5 $/mmbtu
3 - NA pushed out of Europe
Northwest Europe no more than HH + 1.0 $/mmbtu
Henry Hub
2.00
2.50
3.00
3.50
4.00
4.50
5.00
6.00
Liq. Variable (15%)
0.30
0.38
0.45
0.53
0.60
0.68
0.75
0.90
Transport
0.50
0.50
0.50
0.50
0.50
0.50
0.50
0.50
Regas. Variable (6%)
0.17
0.20
0.24
0.27
0.31
0.34
0.38
0.44
N BP
2.97
3.58
4.19
4.80
5.41
6.02
6.63
7.84
N BP (p/ therm )
22.2
26.8
31.3
35.9
40.5
45.0
49.6
58.7
TTF (€/ MWh)
9.0
10.8
12.7
14.5
16.4
18.2
20.0
23.7
$/ £
1.34
€/ $
1.13
Global price will start being driven by the arb with Henry Hub
Source: Energy Aspects
11
Natural Gas outlook
NATURAL GAS (7/10)
Europe: What about Gazprom?
Options available
Implication for Europe
1
Increase current levels of production
Prices towards fuel switch.
2
Maintain current levels of production
3
Cut current levels of production
HH prices least impacted.
EU buys least NA LNG = 1 bcf/d Prices towards fuel switch.
Some upward pressure on HH.
EU buys less NA LNG = 2.5 bcf/d Prices towards fuel switch.
Greater upwards pressure on HH.
EU buys most NA LNG = 5 bcf/d
Russia export Volum e opt ion
Implication for US
St rat egy
Fuel swit ch
y/ y change
Call on LNG
bcm
bcm
bcm
bcf/ d
Call on NA
Reduce (high)
Active decision to cut additional volumes.
(25)
95
40
3.9
Reduce (low)
No decision. Nominations fall.
(10)
80
25
2.4
Maintain
Offset nomination reductions by hub sales.
0
70
15
1.5
Increase
Sell more gas at hub.
15
55
10
1.0
12
Natural Gas outlook
Will Gazprom cut production to support drilling activity in NA?
NATURAL GAS (8/10)
What about the fuel switch: how low can coal go? Coal prices and the importance of oil
EU continental fuel switch
$/t
bcm/q, p/therm
9
Winter Q 55 $/t
8
Winter Q 45 $/t
7
Winter Q 40 $/t
6 5 4 Expected range of Henry Hub to Europe
3 2 20
Softness in global coal markets and cost reducing impact of oil makes fuel-switching more elusive
22.5
25
27.5
13
Natural Gas outlook
35
40
Key dynamic will be the interaction between where the arb closes and where the fuel switching lies Assumes HH at 2.7 to 3.3 $/mmbtu
Source: Reuters, CTI, Energy Aspects
30
NATURAL GAS (9/10)
Any evidence this is happening now? Gas prices- NBP is already fully in the money
Gas prices- TTF supported at first switching level
p/therm
€/MWh
80
NBP D+1
56% v 30%
50% v 30%
45% v 34%
60
20
40
15
20
10
0 Jan 14
Jul 14
Jan 15
Impact of carbon “price floor” tax
Source: Fearnelys, Energy Aspects
14
25
Natural Gas outlook
Jul 15
Jan 16
Jul 16
5 Jul 15
TTF D+1 45% v 30%
Oct 15
Jan 16
50% v 30% 45% v 34%
Apr 16
Jul 16
While this episode might not last into Q4, it is a warning of what is to come.
NATURAL GAS (10/10)
US prices at lower levels…production growth is plateauing Dry gas production
Henry Hub spot price
Bcf/d
$/mmbtu
2016
7
2015
2014
6
74
5
72
2016
2015
2014
70
4
68
3
66
2
64
1
62
0
60
Jan
Apr
Jul
Oct
2015 prices were down by around 40% on 2014 price levels, despite another cold winter in Q1 15 Source: EIA, Energy Aspects
15
76
Natural Gas outlook
Jan
Mar
May
Jul
Sep
Nov
2016 production slowing and showing signs of y/y reductions
CONCLUSION (1/1)
Conclusions: Prices to stay low for long
Q1 UK N BP
Q3
Q4
Annual
y/ y % change
p/therm
2015
48.1
44.8
41.4
37
42.7
(14.7%)
2016
30.5
31.4
29.9
35.4
31.8
(25.6%)
2017
36.3
31.0
31.0
34.7
33.2
4.5%
2018
35.8
29.0
29.0
30.7
31.1
(6.3%)
N etherlands TTF
€/MWh
2015
21.4
21.0
19.9
12.2
18.6
(11.1%)
2016
12.9
13.2
12.8
14.1
13.2
(29.0%)
2017
14.6
12.7
12.7
13.9
13.5
1.8%
2018
14.4
11.9
11.9
12.3
12.6
(6.3%)
Source: EIA, Energy Aspects
16
Q2
Natural Gas outlook
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18
Natural Gas outlook
