me m Progra earch s Re International Gas Market Workshop ... · Long Term Oil Indexed Contracts ... Source: Waterborne LNG, IEA, EIA, Eurostat, Own Analysis 9 0 CY 08/09 CY 09/10

mme

search Program

atural Gas Res International Gas Market WorkshopInternational Gas Market Workshop

European Gas Market OutlookEuropean Gas Market Outlook

Y STUDIES Na pp

23rd August 2012Howard V Rogers

Director Natural Gas Programme

E FO

R EN

ERGY Director Natural Gas Programme

Oxford Institute for Energy Studies

ORD

INSTITUT

OXFO

1

mme

Themes

search Program Themes

• European Price Transition from oil indexation to hub

atural Gas Res pricing.

• Europe and Asia LNG ‘Tug of War’

Y STUDIES Na

• European outlook to 2015

• Beyond 2015: Future Uncertainties and Implications

E FO

R EN

ERGY

Based on the Following Published Research:

‘The Transition to Hub-Based Gas Pricing in Continental Europe’, Jonathan Stern and Howard Rogers, March 2011, http://www.oxfordenergy.org/wpcms/wp-content/uploads/2011/03/NG49.pdf

ORD

INSTITUT

‘The Impact of a Globalising Market on Future European Gas Supply and Pricing: the Importance of Asian Demand and North American Supply’, Howard Rogers, January 2012, http://www.oxfordenergy.org/wpcms/wp-content/uploads/2012/01/NG_59.pdf

‘Continental European Gas Hubs. Are they fit for purpose?’, Patrick Heather, June 2012,

OXFO http://www.oxfordenergy.org/2012/06/continental-european-gas-hubs-are-they-fit-for-purpose/

‘A realistic perspective on Japan’s LNG demand after Fukushima’, Akira Miyamoto, Chikako Ishiguro, Mitsuhiro Nakamura, June 2012http://www.oxfordenergy.org/2012/06/a-realistic-perspective-on-japan%E2%80%99s-lng-demand-after-fukushima/2

mme The European Hybrid ModelThe European Hybrid Model

search Program

Industrial & Power End

atural Gas Res Users & LDC’s

Medium Term Oil –I d d C t t

Y STUDIES Na

Mid Stream Utilities Gas Trading Hubs

Indexed Contracts

E FO

R EN

ERGY

Long Term Oil Indexed Contracts

ORD

INSTITUT

Oil Indexed Pipeline Gas Suppliers

LNG Suppliers

OXFO

3

pp

Source: Based on a Gazprom Presentation

mme The European Current RealityThe European Current Reality

search Program



Short Term Hub –I d d C t t

Y STUDIES Na


Indexed Contracts

stai

nabl

e st

aina

ble

posu

repo

sure

E FO

R EN

ERGY

Long Term Oil Indexed Contracts

Uns

usU

nsus

Exp

Exp

ORD

INSTITUT

Oil Indexed Pipeline Gas Suppliers

LNG Suppliers

OXFO

4

pp

mme

search Program

atural Gas Res

Y STUDIES Na

E FO

R EN

ERGY

ORD

INSTITUT

OXFO

5

mme

European Month Ahead Hub Prices: Q1‐2012

search Program

p Q

atural Gas Res

Y STUDIES Na

E FO

R EN

ERGY

ORD

INSTITUT

OXFO

6Sources: ICIS-Heren, P. Heather

mme Current System 2012

search Program

Price Linkages?

atural Gas Res

Y STUDIES Na

E FO

R EN

ERGY

ORD

INSTITUT

Illiquid Traded Markets

Liberalised/Liquid Traded Markets

OXFO

Global LNG Supply

Incumbent Dominated Oil Indexed LNG Markets

q

State Regulated Niche LNG Markets 7

mme

Global LNG Supply 2008 ‐ 20151,400

ACTUAL FORECAST

search Program

1,200

Yemen

USA ‐ Kenai

Trinidad

Russia

ACTUAL FORECAST

atural Gas Res

1,000Qatar

Peru

Papua New Guinea

Oman

Nameplate Capacity

Y STUDIES Na

600

800

MCM

/D

Norway

Nigeria

Malaysia

Libya

Qatar

E FO

R EN

ERGY

400

600

M

Libya

Indonesia

Equatorial Guinea

Egypt

B iMalaysiaNigeria

ORD

INSTITUT

200

Brunei

Australia

Angola

Algeria

MalaysiaIndonesia

Australia

OXFO

‐

Jan‐08

Apr‐08

Jul‐0

8

Oct‐08

Jan‐09

Apr‐09

Jul‐0

9

Oct‐09

Jan‐10

Apr‐10

Jul‐1

0

Oct‐10

Jan‐11

Apr‐11

Jul‐1

1

Oct‐11

Jan‐12

Apr‐12

Jul‐1

2

Oct‐12

Jan‐13

Apr‐13

Jul‐1

3

Oct‐13

Jan‐14

Apr‐14

Jul‐1

4

Oct‐14

Jan‐15

Apr‐15

Jul‐1

5

Oct‐15

Abu Dhabi

Source: Waterborne LNG 8

mme

Europe – Asia LNG Balance 2008 ‐ 2015ACTUAL FORECAST

700

search Program

European Demand

ACTUAL FORECAST

400

500

600

BCMA

Europe Domestic Production

atural Gas Res

EU

RO

PE

200

300

E rope Pipeline imports

p

Y STUDIES Na E

A 100

0

100

Europe LNG Imports

Europe Pipeline imports

Japan LNG Imports

E FO

R EN

ERGY

AS

IA

‐300

‐200

‐100

2008 2009 2010 2011 2012 2013 2014 2015

p p

S. Korea LNG Imports Taiwan LNG ImportsIndia LNG Imports

China LNG Imports

ORD

INSTITUT

MA

Pipeline Imports T‐o‐P @ 85% of ACQ

2008 2009 2010 2011 2012 2013 2014 2015

100

200

OXFO

BCM

Source: Waterborne LNG, IEA, EIA, Eurostat, Own Analysis 9

0

100

CY 08/09 CY 09/10 CY 10/11 CY 11/12 CY12/13 CY 13/14 CY 14/15

mme

25

Gas Prices 2007 – May 2012

search Program

20

BAFA = Average German Import PriceNBP = UK National balancing Point PriceHH = Henry Hub US Price

Brent

atural Gas Res

15

Japanese LNG average

European Oil Indexed Pi li C t t

Y STUDIES Na

10

15

$/mmbtu

BAFA

Pipeline Contracts

E FO

R EN

ERGY 10

NBP

ORD

INSTITUT 5

HH

OXFO

0Jan‐07 Jul‐07 Jan‐08 Jul‐08 Jan‐09 Jul‐09 Jan‐10 Jul‐10 Jan‐11 Jul‐11 Jan‐12 Jul‐12

Sources: Argus, BAFA, EIA, ICIS Heren, Own analysis10

mme

3000

European Demand 2001 ‐ 2012 – The Slump Continuessearch Program

2000

2500

ay

Predicted Based on Pre-Recession Temperature Relationship

atural Gas Res

500

1000

1500

MMCM

/Da

Actual

Y STUDIES Na

Ratio: Actual Demand to Predicted given temperature & No Recession

0

500

Jan‐01 Jan‐02 Jan‐03 Jan‐04 Jan‐05 Jan‐06 Jan‐07 Jan‐08 Jan‐09 Jan‐10 Jan‐11 Jan‐12 Jan‐13

Actual Predicted given Temps & No recession

Actual

E FO

R EN

ERGY

80%

100%

120%

• Recessionary Impacts• Low Coal & CO2 Prices

ORD

INSTITUT

40%

60%

Ratio Ratio • Renewables Capacity

Growth

OXFO

0%

20%

Jan‐01 Jan‐02 Jan‐03 Jan‐04 Jan‐05 Jan‐06 Jan‐07 Jan‐08 Jan‐09 Jan‐10 Jan‐11 Jan‐12 Jan‐13

11

mme

European Gas Prices vs Coal – June 2009 – June 2012

search Program

p

16

Gas Arbitrage Prices July 2009 - June 2012

atural Gas Res

12

14Oil Indexed Contract estimate

Y STUDIES Na

8

10

mbt

u

BAFA

NBP

E FO

R EN

ERGY

4

6

8

$/m

Gas Price Competitive with Coal in Power generation

ORD

INSTITUT

2

4g

Henry Hub

OXFO

12

0

Jul-0

9

Jan-

10

Jul-1

0

Jan-

11

Jul-1

1

Jan-

12

Jul-1

2

mme The Future: Major Uncertainties

search Program • Asian Natural Gas and LNG Demand.

atural Gas Res

• US Future Shale Gas Production Growth and potential scale of North American LNG exports.

Y STUDIES Na

• The Success of Shale Gas outside the US

E FO

R EN

ERGY

• Timing/slippage of new non‐North American LNG

ORD

INSTITUT

projects.

OXFO

• Production versus pricing policy for European pipeline gas suppliers post oil‐indexation.

13

mme The European FutureThe European Future

search Program



Short Term Hub –I d d C t t

Y STUDIES Na


Indexed Contracts

E FO

R EN

ERGY

Long Term Hub Indexed Contracts

ORD

INSTITUT

LNG SuppliersOil Indexed Pipeline Gas

Suppliers

OXFO

14

pp

mme

Global LNG System 2015+: High US Production, High & Low Asia Demand

search Program

Global LNG

Global LNG System Balanced, North America Exports LNG

atural Gas Res

Niche Markets(Dominican Rep., Costa Rica, S America etc.)

Supply

US Producers

Y STUDIES Na

Asian Markets (Japan, Korea, Taiwan, China, India)

European LNG Buyers & Suppliers of l bl

E FO

R EN

ERGY

Additional Capacity

Upstream Sellers

Flexible LNG

‘Normal’ Storage

Hub‐Indexed Pipeline Contracts / direct hub sales

ORD

INSTITUT

Minimum Supply Floor

Additional Capacity

Domestic d i

Pipeline Imports

PipelineImports

US Exports LNG provided price difference between

Inventory Level

Domestic P d ti

OXFO

EuropeNorth America

Productionp p p ff

HH and Europe is > circa $3.50/ mmbtu . Flow reduces as Storage level falls. Incremental supply ends up in Europe.

Production

US Liquefaction

15

mme

Global LNG System 2015+: High US Production, High & Low Asia Demand

search Program

Global LNG

Global LNG System Balanced, North America Exports LNG

atural Gas Res


Supply

US Producers

Y STUDIES Na


European LNG Buyers & Suppliers of l bl

?

E FO

R EN

ERGY

Additional Capacity

Upstream Sellers

Flexible LNG



ORD

INSTITUT


Additional Capacity

Domestic d i

PipelineImports

US Exports LNG provided price difference between

Inventory Level

Domestic P d ti

Pipeline Imports

OXFO

EuropeNorth America

Productionp p p ff

HH and Europe is > circa $3.50/ mmbtu . Russia defending export target results in excess supply going to N. America, Hub prices reduced.

Production

US Liquefaction

16

mme

High US Production, High Asian Demand, European Pipeline Suppliers Enforce Price Target

Global LNG Consumption North American LNG Imports/Exports

search Program Global LNG Consumption North American LNG Imports/Exports

50% probability of uncertain future non-North American projects, plus North American LNG

atural Gas Res

Y STUDIES Na

Russian Pipeline Exports to Europe Regional Prices

E FO

R EN

ERGY Russian Pipeline Exports to Europe Regional Prices

Japan LNG Contracts (JCC)

ORD

INSTITUT

Asian LNG SpotNBP

OXFO

Henry Hub

17

mme

High US Production, High Asian Demand, European Pipeline Suppliers Maintain Export Target



500

600

700

North America

50% probability of uncertain future non-North American projects

atural Gas Res

200

300

400

bcma

North America

Europe

New markets

India

China

Taiwan

Korea

Japan

Y STUDIES Na


0

100

2008 2010 2012 2014 2016 2018 2020 2022 2024

E FO

R EN



?

ORD

INSTITUT

Asian LNG SpotNBP

?

OXFO Henry Hub

18

mme

High US Production, Low Asian Demand, European Pipeline Suppliers Enforce Price Target




atural Gas Res

Y STUDIES Na


E FO

R EN



ORD

INSTITUT Asian LNG Spot

NBP

OXFO Henry Hub

19

mme

High US Production, Low Asian Demand, European Pipeline Suppliers Maintain Export Target




atural Gas Res

Y STUDIES Na


E FO

R EN



ORD

INSTITUT Asian LNG Spot

NBP

?

OXFO Henry Hub

20

mme Global LNG System 2015+: Low US Production

search Program

Global LNG

l

Global LNG System Balanced, North America Imports LNG

atural Gas Res


Supply

Y STUDIES Na


European LNG Buyers & Suppliers of Fl ibl LNG

E FO

R EN

ERGY


Upstream Sellers

Flexible LNG

Additional Capacity


ORD

INSTITUT Inventory Level

Domestic Domestic

Pipeline Imports

PipelineImports

Additional Capacity


OXFO

EuropeNorth America

Production Production

Arbitrage has lead to convergence between US Price and European Price

21

mme Low US Production, High Asian Demand




atural Gas Res

Y STUDIES Na


E FO

R EN



ORD

INSTITUT

Asian LNG Spot

NBP

Henry Hub

OXFO

22

mme ConclusionsConclusions

search Program

• Europe appears to be transitioning from oil‐indexed prices to hub based pricing. Russia is an unwilling participant but has made some concessions.

• With North America self‐sufficient – to 2015 consensus view is that

atural Gas Res

With North America self sufficient to 2015 consensus view is that European hub prices will rise up to (modified) oil‐indexed levels as Asia pulls LNG away from Atlantic Basin.

• However, flagging European demand and uncertainties over Asian

Y STUDIES Na However, flagging European demand and uncertainties over Asian

economic robustness could keep market soft and prices moderate.

• In a hub‐based European gas market, Russia would have significant market power and would be able to influence hub prices.

E FO

R EN

ERGY power and would be able to influence hub prices.

• Beyond 2015 scale of North American LNG exports, Asian LNG demand, pace of non‐North American LNG supply growth and potential for shale gas internationally result in a wide range of scenarios.

ORD

INSTITUT gas internationally result in a wide range of scenarios.

• Russia is the large scale ‘swing producer’ facing potentially difficult choices over volume versus price in this future world – with implications for prices outside Europe.

OXFO outside urope.

23

mme

search Program

Thank You

atural Gas Res Thank You

for your attention

Y STUDIES Na for your attention.

Look out for our new book ‘The Pricing of

E FO

R EN

ERGY

Internationally Traded Gas’ this Fall at:http://www.oxfordenergy.org/gas‐programme/

ORD

INSTITUT

Howard V RogersDirector,

OIES Natural Gas Programme

OXFO g

[email protected]

24

Documents

me m Progra earch s Re International Gas Market Workshop ... · Long Term Oil Indexed Contracts ... Source: Waterborne LNG, IEA, EIA, Eurostat, Own Analysis 9 0 CY 08/09 CY 09/10