IEEJ © 2020, All rights reserved...Ken Koyama, IEEJ, April 27 th, 2020 Gas/LNG demand reduction versus 2020 level Natural gas LNG-150 -100 -50 0 OECD Americas OECD Europe OECD Asia
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IEEJ © 2020, All rights reserved
2
IEEJ © 2020, All rights reserved
Ken Koyama, IEEJ, April 27th, 2020
Even before pandemic, energy market sees over supply
COVID-19 outbreak in China developed into pandemic
World economy, the worst since the Great Depression
Lockdown destruct oil demand: demand shock
Supply shock added another pressure when joint production cut collapsed
Unprecedented oversupply and extreme low price
Pain and terror resulted in restoration of joint cut, but…
Emerging inventory bottleneck gives downward pressure
Supply glut and uncertainty will be the keyword
Energy market under demand and supply shock
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IEEJ © 2020, All rights reserved
Ken Koyama, IEEJ, April 27th, 2020
Oil price plummeted under COVID-19 pandemic
Source: NYMEX and other data
0
20
40
60
80
100
120
140
Jan
-07
Apr
-07
Jul-
07
Oct
-07
Jan
-08
Apr
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-10
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Apr
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-13
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-14
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-15
Apr
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-19
Apr
-19
Jul-
19
Oct
-19
Jan
-20
Apr
-20
Jul-
20
Oct
-20
(US$/bbl)
Continued price runups
S
Rebound from the
MENA crisis
Brent
WTI
Collapse after Rehman shock
WTI hit 26$ in Feb 2016
OPEC decision to leave price fall
OPEC Plus cut output
Brent topped 80 $Demand
shock
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IEEJ © 2020, All rights reserved
Ken Koyama, IEEJ, April 27th, 2020
IMF「World Economic Outlook」
Source: IMF “World Economic Outlook” (April 2020)
2020 2020
January April
World 3.2 3.2 3.8 3.6 2.9 3.3 -3.0
OECD 2.1 1.7 2.4 2.2 1.7 1.6 -6.1
US 2.6 1.5 2.2 2.9 2.3 2.0 -5.9
Euro zone 2.0 1.8 2.4 1.9 1.2 1.3 -7.5
Japan 1.2 0.9 1.9 0.3 1.0 0.7 -5.2
Non-OECD 4.1 4.4 4.7 4.5 3.7 4.4 -1.0
China 6.9 6.7 6.9 6.6 6.1 6.0 1.2
India 7.6 7.1 6.7 6.8 4.8 5.8 1.9
2015 2016 2017 2018 2019
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IEEJ © 2020, All rights reserved
Ken Koyama, IEEJ, April 27th, 2020
Well-functioning of “people”, “goods” and ”money” is essential for economic activities
COVID-19 pandemic: Serious problems for “people” and “goods”: damaged real economy
Then “money” problem hit the world, leading to vicious cycle
Rehman shock 2008-09 financial crisis: Rehman Brothers bankrupted: “money” caused financial crisis
Then real economy damaged worldwide
US-China trade war: Tariff war: “goods” problem caused reduction on world trade
Then “money” problem damaged the world economy
Economic crisis: “people”, ”goods” and "money"
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IEEJ © 2020, All rights reserved
Ken Koyama, IEEJ, April 27th, 2020
World economy contracted by 3%
World GDP growth
Source: Koyama and Suehiro (IEEJ, April 2020)
GDP trend by quarter
90
92
94
96
98
100
102
2019Q4 2020Q1 2020Q2 2020Q3 2020Q4
2019Q4=100
Reference Longer Pandemic
3.8% 3.6%2.9%
-3.0%
-6.0%
-8%
-6%
-4%
-2%
0%
2%
4%
RS LPS
2017 2018 2019 2020
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IEEJ © 2020, All rights reserved
Ken Koyama, IEEJ, April 27th, 2020
World oil demand Oil demand by quarter
Oil demand under COVID-19 pandemic
98.1 99.2
100.0
90.7
87.2
80
84
88
92
96
100
104
RS LPS
2017 2018 2019 2020
Mb/d
72
76
80
84
88
92
96
2020Q1 2020Q2 2020Q3 2020Q4
Mb/d
Reference Longer Pandemic
Source: Koyama and Suehiro (IEEJ, April 2020)
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IEEJ © 2020, All rights reserved
Ken Koyama, IEEJ, April 27th, 2020
By region By product
Oil demand reduction versus 2020 level
-4 -3 -2 -1 0
OECD Americas
OECD Europe
OECD Asia Oceania
FSU & Other Europe
China
Other Non-OECD Asia
Non-OECD Americas
Middle East
Africa
Mb/d
Reference
Longer Pandemic
-4 -3 -2 -1 0
LPG & ethane
Naphtha
Gasoline
Jet & kerosene
Gasoil
Residual fuel
Other products
Mb/d
Source: Koyama and Suehiro (IEEJ, April 2020)
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IEEJ © 2020, All rights reserved
Ken Koyama, IEEJ, April 27th, 2020
Natural gas demand Natural gas demand by quarter
Natural gas demand under COVID-19 pandemic
3654
3849
3969
3682
3566
3400
3500
3600
3700
3800
3900
4000
RS LPS
2017 2018 2019 2020
Bcm
600
700
800
900
1000
1100
1200
2020Q1 2020Q2 2020Q3 2020Q4
Bcm
Reference Longer Pandemic
Source: Koyama and Suehiro (IEEJ, April 2020)
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IEEJ © 2020, All rights reserved
Ken Koyama, IEEJ, April 27th, 2020
LNG demand LNG demand by quarter
LNG demand under COVID-19 pandemic
288
316
353
325
312
260
280
300
320
340
360
RS LPS
2017 2018 2019 2020
LNG-Mt
50
60
70
80
90
100
2020Q1 2020Q2 2020Q3 2020Q4
LNG-Mt
Reference Longer Pandemic
Source: Koyama and Suehiro (IEEJ, April 2020)
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IEEJ © 2020, All rights reserved
Ken Koyama, IEEJ, April 27th, 2020
Gas/LNG demand reduction versus 2020 level
Natural gas LNG
-150 -100 -50 0
OECD Americas
OECD Europe
OECD Asia Oceania
FSU & Other Europe
China
Other Non-OECD Asia
Non-OECD Americas
Middle East
Africa
Bcm
Reference
Longer Pandemic
-20 -15 -10 -5 0
OECD Americas
OECD Europe
OECD Asia Oceania
FSU & Other Europe
China
Other Non-OECD Asia
Non-OECD Americas
Middle East
Africa
LNG-Mt
Source: Koyama and Suehiro (IEEJ, April 2020)
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IEEJ © 2020, All rights reserved
Ken Koyama, IEEJ, April 27th, 2020
Energy demand reduction by “Lockdown” (1)
Source: Suehiro and Koyama (IEEJ, April 2020)
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IEEJ © 2020, All rights reserved
Ken Koyama, IEEJ, April 27th, 2020
Energy demand reduction by “Lockdown” (2)
-3.4
by sector
residential
industry
commercial
transport
-3.4 -4
-3
-2
-1
0
1Mtoe/d
by energy
oil
gas
coal
electricity
Final energy reduction
Primary energy reduction
-18.1
(-19.7%)-20
-15
-10
-5
0
Oil (Mb/d)
-1.1
(-10.7%)
-2.0
-1.5
-1.0
-0.5
0.0
Gas (Bcm/d)
-4.1
(-11.4%)
-8
-6
-4
-2
0
Total (Mtoe/d)
-1.2
(-8.1%)
-4
-3
-2
-1
0
Coal (Mtce/d)
Source: Suehiro and Koyama (IEEJ, April 2020)
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IEEJ © 2020, All rights reserved
Ken Koyama, IEEJ, April 27th, 2020
Supply shock: Collapse and restoration of joint production cut
March 6, Russia rejected the joint production cut
Saudi reversed the oil policy to increase the production
Price war broke out
March 9, WTI declined by 10$ to 31.13$
March 30, WTI further declined to 20.09$ under demand shock
April 2, Trump stated Russia and Saudi will cut production
Saudi called for an emergency OPEC plus meeting
April 9, OPEC plus agreed to restore joint production cut
G20 discuss the measures for market stabilization
April 12, OPEC plus decided 9.7 MB/D production cut from May
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IEEJ © 2020, All rights reserved
Ken Koyama, IEEJ, April 27th, 2020
Russian situation
OPEC plus cut benefits US shale oil (high cost producer)
Benefit to US (shale) unacceptable for Russian national interest
Russia argued Russia can bare low oil price longer than Saudi
The impact of low price much bigger than anticipation
Pandemic damaged European market, Russian main outlet
The pain was too acute for Russia
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IEEJ © 2020, All rights reserved
Ken Koyama, IEEJ, April 27th, 2020
Saudi situation
Various conditions suggest preference to higher price
Emphasis on “joint production cut” (never be a swing producer)
But joint production cut collapsed by Russian rejection
This lead to Saudi reversal to market share strategy/price war
“Lose a battle to win a war” strategy
The pain of low price, a driver for restoration of joint cut
But the pain was beyond anticipation
The importance of the call from Trump
Actually, joint cut was restored (as originally aimed at)
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IEEJ © 2020, All rights reserved
Ken Koyama, IEEJ, April 27th, 2020
US situation
US shale oil, high production cost oil
Oil price, not affecting US gov. budget deficit/surplus, but…
Below 20$ caused serious damages to shale revolution
Destructive impact on US shale industry
Low oil price caused lower NY stock price
Economic pain was too strong for Trump
Mediation for Russia/Saudi price war
US production likely to be in the hand of “market mechanism”
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IEEJ © 2020, All rights reserved
Ken Koyama, IEEJ, April 27th, 2020
OECD Company oil inventory
Oil inventory build put strong downward pressure on oil price
Source: Prepared by author based on IEA data
2507
2,200
2,300
2,400
2,500
2,600
2,700
2,800
2,900
Jan-0
6A
pr-
06
Jul-
06
Oct
-06
Jan-0
7A
pr-
07
Jul-
07
Oct
-07
Jan-0
8A
pr-
08
Jul-
08
Oct
-08
Jan-0
9A
pr-
09
Jul-
09
Oct
-09
Jan-1
0A
pr-
10
Jul-
10
Oct
-10
Jan-1
1A
pr-
11
Jul-
11
Oct
-11
Jan-1
2A
pr-
12
Jul-
12
Oct
-12
Jan-1
3A
pr-
13
Jul-
13
Oct
-13
Jan-1
4A
pr-
14
Jul-
14
Oct
-14
Jan-1
5A
pr-
15
Jul-
15
Oct
-15
Jan-1
6A
pr-
16
Jul-
16
Oct
-16
Jan-1
7A
pr-
17
Jul-
17
Oct
-17
Jan-1
8A
pr-
18
Jul-
18
Oct
-18
Jan-1
9A
pr-
19
Jul-
19
Oct
-19
Jan-2
0A
pr-
20
Jul-
20
Oct
-20
OECD inventory
Past 10 Y ave
(100万バレル)
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IEEJ © 2020, All rights reserved
Ken Koyama, IEEJ, April 27th, 2020
Short-term outlook for oil market
10 MB/D joint production cut is not enough
Some uncertainty over the future of joint production cut
Current oil demand may contract by more than 20 MB/D
The shared “terror” contributed to restoration of joint cut
Global inventory capacity may be filled up sometime in 2Q
Thus oil price under strong downward pressure
2 critical factors: future of demand destruction and joint cut
If pandemic stabilizes and economic recovery in 2H this year with continued joint cut, oil price may head for 30$
If pandemic continues to destabilize the world with uncertainty over joint cut, oil price may go down to be below 10$
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IEEJ © 2020, All rights reserved
Ken Koyama, IEEJ, April 27th, 2020
Reduced LNG demand accelerates supply glut
Even without pandemic, 2020 market sees supply surplus…
Note: 2020 RS assumes 3% minus for world GDP, while LPS assumes 6% minus
315 315
349 347
381369
325312
0
50
100
150
200
250
300
350
400
Supply Demand Supply Demand Supply Demand RS LPS
2018 20202019
(Million ton)
Source: Koyama and Suehiro (IEEJ, April 2020)
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IEEJ © 2020, All rights reserved
Ken Koyama, IEEJ, April 27th, 2020
Regional gas/LNG price in the world
Asia spot price declined significantly. JCC indexed price will follow
0
2
4
6
8
10
12
14
16
18
20
Henry Hub
NBP
Japan LNG average
Asian spot LNG
Units: USD / million Btu
Data Sources: Customs Statistics, ICE, PRAs
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IEEJ © 2020, All rights reserved
Ken Koyama, IEEJ, April 27th, 2020
Short-term outlook for LNG market
LNG market sees supply surplus even before the demand shock
Main reason was substantial increase in LNG supply
Chinese LNG demand reduced after the COVID-19 outbreak
Pandemic further reduced global LNG demand: Demand shock
Large-scale supply glut and decline in LNG spot price
Oil price collapsed and term LNG price decline with time-lag
Asian LNG price will be lowered as a whole
Price gap between term LNG price and spot price?
Competitiveness of US LNG (HH price plus fixed costs)?
There is no “OPEC plus” in LNG market
Source for supply flexibility: US LNG supply?
Over-supplied market remain longer than anticipated
23
IEEJ © 2020, All rights reserved
Ken Koyama, IEEJ, April 27th, 2020
Long-term implication of COVID-19 pandemic
Transportation demand may structurally restrained
Digitalization may substitute transportation demand
Oil demand restrained, acceleration of “electrification”
Any shift in the priority of “3E”?
Implication on decarbonization and energy security?
Pandemic shed lights on the importance of “big government”
The rise of “me-first” trend and its impact on geopolitics
The meaning of priority to “self-sufficiency”
Crisis management efficiency: Democracy vs authoritarian
24
IEEJ © 2020, All rights reserved
Ken Koyama, IEEJ, April 27th, 2020
Thank you very much for your kind attention.
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