EU Natural Gas: The Implications of Price on Demand

Transcription

1 EU Natural Gas: The Implications of Price on Demand Andrew Ellis Managing Director, European Energy Markets Sam Shoro Senior Consultant, European Natural Gas

2 Agenda European Natural Gas Prices and Demand Historical Context / Forward Curve Clear and Present Drivers Effect on EU Gas Prices IHS Global Insight s Forecasts Risks to the Forecast European Gas Supply and Demand Conclusion

3 Evolution of EU Gas Prices and Forward Curve /MWh /MWh Development of EU Gas Prices - Historic and Forward Curves $/mmbtu $/mmbtu Forward Curves on 9th Dec'8 1 Forward Curves on 3rd 1st Nov'8 Jul'8 5-9 ($4) Differential 3-15/17 12 Moved ($5) ($6/8) into Differential Contango Differential Curves Moved into Backwardation Contango Jan-4 Jan-5 Jan-6 Jan-7 Jan-8 Jan-9 Jan-1 Jan-11 Jan-12 Jan-13 Jan-4 Jan-5 Jan-6 Jan-7 Jan-8 Jan-9 Jan-1 Jan-11 Jan-12 Jan-13 NBP - Forward Curve (3/7/8) NBP - Forward Curve (1/11/8) NBP NBP - - Forward Forward Curve Curve (3/7/8) (1/11/8) (8/12/8) Oil-Indexed NBP - Forward Zeebrugge Curve (3/7/8) Troll Oil-Indexed Zeebrugge Troll Henry Hub - Forward Curve (3/7/8) Oil-Indexed Zeebrugge Troll Henry Hub - Forward Curve (1/11/8) Henry Hub - Forward Curve (8/12/8) Henry Hub - Forward Curve (1/11/8) Henry Henry Hub Hub - - Forward Forward Curve Curve (3/7/8) (3/7/8)

4 Clear and Present Drivers Key Drivers Softening crude prices Global recession Gas into power sector Falling coal prices ETS weak post Kyoto agreement Low EUA price dark/spark spreads LNG demand weaker in US/Pacific LNG infrastructure enhanced Development of wind/renewables Effect on Gas Market Weaker border prices from Q1 9 Reduced demand for gas Reduced demand for gas Reduced demand for gas Coal preferred to gas Increased LNG supply for Europe Link to Henry Hub Improved flexibility Reduced demand for gas Oversupply

5 Medium Term Forecast NBP v Zeebrugge Troll v Hhub (nominal) ( per MWh) UK - NBP Zeebrugge Troll US Henry Hub NPB and Oil-Indexed prices converge towards Henry Hub in the short term NBP correlates with Henry Hub over the medium term

6 Short Term Forecast Could supply overhang in a deep recession kickstart gas-to-gas competition on the Continent? NBP v Oil-Indexed v Henry Hub v LNG (Far East) $/mmbtu Jan 28 Apr Jul Oct Jan 29 Apr Jul Oct Jan 21 Source: ICE, ICIS Heren GLM /MWh Apr Jul Oct N B P N B P F o rward C urve 14/ 11/ 8 HN HB ub P H H ub EU Oil EU Indexed Oil Indexed (T ro ll) (T ro ll) LN G F ar-east (D elivered) Suppliers forced to sell unused, contracted (oilindexed) gas on the spot market..

7 Churn at Continental Hubs EU Gas Hubs - Average Churn Rates Jan 26 Apr Jul Oct Jan 27 Apr Jul Oct Jan 28 Apr Jul Oct ZBG TTF BEB EGT PEGs Source: Huberator, GTS, Gasunie, E.ON, GRTgaz

8 Increasing Trade at Continental Hubs EU Gas Hubs/Exchanges - Volume Traded - VolsTraded (GWh/day) (GWh/day) 45, 2,5 4, 35, 2, 3, 1,5 25, 2, 1, 15, 1, 5 5, - Networks, Grids and Exchanges Merging Jan 26 Apr Jul Oct Jan 27 Apr Jul Oct Jan 28 ZBG TTF BEB Apr Jul Oct NBP ZBG EGT ZBGTTF TTF PEGsBEB BEB EGT EGT PEGs ICE (UK NBP) APX/Endex (NBP/TTF) EEX/Pwrnxt (EGT/BEB/PEG) Source: Huberator, GTS, Gasunie, E.ON, GRTgaz

9 Market Liberalisation and Gas-to-Gas Competition % of market set by gas-togas competition 1% 8% Global Recession 6% Short/Medium-Term Oversupply 4% LNG Increased Flexibility 2% % Low Price Scenario Base Case High Price Scenario Real euros/mwh Global Insight - Long Term View Differential Henry Hub price NBP NBP Drops Below Henry Hub (Real), Differential Returns Continental Prices Link to Spot Instead of Crude

10 Risks to the Price Outlook Supply cuts Producers take volume and price risk Recession is very mild and limited in scope Asian economies recover within the short-term Crude/Coal prices surge to pre-july 8 levels German market is still key to gas liberalisation in Europe E.On Ruhrgas new contracts (mix of spot and oil-indexed) Merger of zones delayed further Keep an eye on EC unbundling requirement

11 Not So Fast: Gas Demand Growth Slows European gas demand outlook Europe Commercial 4% Industry & feedstocks 18% Residential 9% Other 1% BCM Europe 3% 25% 2% 15% 1% 5% Gas' share of TPES Power 68% % BCM Residential sector gas demand Industry & feedstocks Other Commercial sector gas demand Power sector gas demand Share of total primary energy supply Annual increment

12 Divided Continent: Incremental Demand Focused On the South Incremental demand focused on Mediterranean region Balkans, Iberia, Italy and Turkey = 12 bcm of additional gas (7% of total) 19bcm (33% of European total) Heartland European markets modest growth Benelux, Germany, France and UK = 27 bcm additional gas (16% of total) 35 bcm (53% of European total) Primary gas demand Turkey 23% Southern Europe 13% Balkans Western Europe 16% 5% Northern Europe 5% BCM Iberian Penisula 17% Baltic Sea 6% British Isles 6% Central Europe 9% Incremental annual gas demand

13 New Gas Arriving: European Gas Supplies bcm Domestic UK Netherlands Norway Other Europe Russia Algeria Egypt Nigeria Qatar Trinidad & Tobago Other external

14 Falling Prospects: Demand Revised Down 2 Europe bcm Power sector gas demand was forecast 6 bcm lower than last year s outlook for Power Industry & feedstocks Commercial Residential Total gas demand was forecast 7 bcm lower than last year s outlook for 23 High prices were responsible bcm Europe

15 Bubble Ahead: Revised European Gas Demand Projections No growth in gas demand from 28 to Base-Mild Base-Deep Base Case Mild Recession Deep Recession As much as 8 bcm lower than base case in 21 (13% of annual demand) bcm Massive over contraction 58 bcm contracted for bcm over contracted in base case (11%) 16 bcm over contracted in mild recession (18%) 146 bcm over contracted in deep recession (25%) GDP growth 12% 1% 8% 6% 4% 2% % -2% -4% -6% -8% -1% Base Case Mild Recession Deep Recession

16 Conclusions We have clear and present drivers posing a real threat to Oil-Indexation A sustained and deep global recession will significantly impact on European gas demand growth particularly in the power sector, causing a supply overhang The forced sale of over-contracted gas on the spot market could be sufficient to kick-start gasto-gas competition on the Continent

17 Thank you! Andrew Ellis Managing Director of European Energy Markets Sam Shoro Senior Consultant, European Natural Gas