CEDIGAZ, the International Association for Natural Gas

Current trends & prospects for natural gas Armelle Lecarpentier, Chief Economist Rueil-Malmaison, 4 December 2015

Moderate growth in world gas supply Main 2015 facts

Apparent demand (bcm) 4000

•

Moderate growth in gas supply and demand (+ 1.5%), but still below the 10-year average

3500

•

The US remains the main driver behind growth

2500

•

Positive supply growth in Asia (PNG, Australia…)

1500

•

Recovery in global gas consumption (Europe)

1000

•

Muted gas demand growth in China

•

Declining demand in Northeast Asia (Japan, South Korea) due to competition from other fuels (coal, nuclear)

•

Return to growth in international gas trade (LNG, Russia’s exports to Europe, China’s pipeline imports)

10%

•

Cheap coal continued to weigh on demand (Europe, Asia)

6%

•

LNG oversupply re-oriented from Asia to Europe

4%

•

Depressed international gas prices

2%

•

Persistent gas shortages in some countries of Africa (Egypt), Asia (Southeast Asia, Pakistan), Latin America (Argentina, Trinidad & T) and the Middle East

December 4, 2015

3000

2000

500 0 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 (F)

Growth - %/year

8%

0% -2% -4% 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 (F)

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Evolution of marketed production Marketed production (bcm) 2010

1200

2015 vs. 2014: + 1.5%

1000

Bcm

1400

2011

1200 1000

OECD

2012

800

2013

800

CIS

600

2014

600

OPEC

400

2015 (F)

400

Others

200

200

0 0 2010

2015 vs 2014 (bcm) 50 40 30 20 10 0 -10 -20 -30

2011

2012

2013

2014 2015 (F)

Production growth in the top-6 producers 140 United States

130

Russia

120

Iran 110

Qatar

100

Canada China

90 2010 2011 2012 2013 2014 2015 (F)

December 4, 2015

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Global gas production is still driven by the US Shale gas production - Bcf/d

US gas supply (bcm) 900

50 45 40 35 30 25 20 15 10 5 0

Bakken

800

Eagle Ford

700

Haynesville

600

Niobrara Permian Utica Marcellus

Net imports Other production Shale gas

500 400 300 200 100 0 2007 2008 2009 2010 2011 2012 2013 2014 2015 (F)

Source: EIA

US rig count (gas)

Source: CEDIGAZ Analysis

Marcellus gas resources by breakeven prices

500 400 300 200 100 0

Source: Baker Hugues

December 4, 2015

Source: Wood Mackenzie

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Recovery in EU-28 consumption •

1st half 2015: + 9% (Germany)

•

2015 Forecast: + 6% (warm winter and continued energy efficiency)

Bcm

600

- 5.4%

+ 7.5%

- 10.1%

500

- 3.3%

- 1.4% - 11.5%

+ 6%

400

•

Weather conditions are the main factor

•

Industrial activity picked up

•

Drop in hydropower (Germany, Italy, Spain…)

200

•

Increased industrial demand (France)

100

•

But low coal prices continue to weight on gas demand for power generation

300

0 2009

2010

2011

2012

2013

2014

2015 (F)

Source: CEDIGAZ Analysis

2016 Outlook •

Gas-fired power generation is increasingly making its way into the merit order (United Kingdom)

•

Competitive gas price with coal (CO2 price included) of around $4/MBtu outside the UK

•

Little European gas demand growth

•

Low gas prices ($4/MBtu-$6/MBtu) against the background of a mild weather and high inventories

December 4, 2015

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European gas supply European gas supply in 2015 (F)

Bcm 160 140 120

2014

5% 4%

2015 (F)

100 LNG imports

80 24%

60 40

50%

31%

Russia Algeria (pipeline)

20

11%

0

15%

Other imports Norway Netherlands

10%

EU Production - Other

• Regional production plus extra-European imports • Europe includes EU28, Norway, Switz., Turkey and Central Europe Source: CEDIGAZ

December 4, 2015

• • • • •

Massive reduction in Groningen production Norway’s gas production heading for a record Rising imports from Russia (2nd half 2015) Strong growth in LNG imports (Qatari flexible LNG) Net storage withdrawals to meet actual consumption

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Muted growth in Chinese gas demand 2015 Outlook Bcm

Gas demand: + 2.5%; Imports: + 1.5%

2020

450

Gas production: + 3%

400

Power consumption: + 1%

350

Lower investment growth rates

300

Lower industrial demand

250

GDP: + 6.8%

200 150

•

Low rate of growth compared with GDP

•

Cheap oil and economy restructuring

•

Increased wind and nuclear capacity Short Term Outlook

100 50 0

Source: CEDIGAZ

•

A cut in non-residential gas prices at the end of this year could revive flagging demand

•

China faces challenging headwinds: environmental protection versus protectionist coal policy

•

Projection of Chinese demand coloured by strong uncertainties (conflicting high and low cases)

December 4, 2015

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International natural gas prices 20 $/MBtu

$/MBtu

2013

2014

2015 (F)

EU - avg

11.8

10

6.8

10

NBP

10.6

8.2

6.6

5

Japan-Spot

16.5

14

7.6

HH

3.8

4.5

2.8

Europe - Average

Spot NBP

Nov-15

Sep-15

Jul-15

May-15

Mar-15

Jan-15

Nov-14

Sep-14

Jul-14

May-14

Mar-14

Jan-14

Nov-13

Sep-13

Jul-13

May-13

Jan-13

0

Mar-13

15

Source: CEDIGAZ Analysis, Reuters, EIA

Brent 6-M average

•

Downtrend in NBP prices since Feb. 2015

20

•

Falling coal prices ($50/t in November)

15

•

Increased competitiveness of Russian gas in the last months of 2015

•

Spot Asian prices capped by low oil prices, arbitrages between Europe and Asia, weak demand, high inventories and plentiful supply

•

Exceptionally low levels of Henry Hub

25 $/MBtu

10 5

Japan LNG - Spot

December 4, 2015

NBP

Nov-15

Sep-15

Jul-15

May-15

Mar-15

Jan-15

Nov-14

Sep-14

Jul-14

May-14

Mar-14

Jan-14

Nov-13

Sep-13

Jul-13

May-13

Mar-13

Jan-13

0

Henry Hub

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2016 Outlook: still bearish pressures… •

A more significant growth in global supply in 2016 (US, Australia…). The surge in LNG supply has been delayed into 2016 and a consistent upward trend remains to be seen.

•

Improved energy efficiency, declining coal prices (China, Continental Europe) and expansion of renewables will continue to impact gas demand.

•

Competition between US LNG and Russia (gas surplus). Russian exports still profitable at $4/MBtu.

•

It is likely that South Korea and Japan have reached a peak.

•

China has started a structural slowdown of gas demand growth (lower rate of energy intensity).

•

Despite spending cuts from E&P companies, high-grading, rig efficiency gains and reduced service costs should result in a relative stabilization of US shale gas production in 2016.

•

US LNG exports and softening shale gas production might not be enough to push HH price above $3.5/MBtu in 2016.

•

World ample supply combined with global weak demand should maintain international prices at low levels in 2016.

•

The global LNG glut is more likely to last until 2022…

December 4, 2015

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