Howard V Rogers, Senior Research Fellow OIES EPRG Winter ... · • Current Gas Market Status and Outlook • UK Gas Market Future Challenges. ... European LNG Imports Jan 2005 –Oct

Atlantic Basin LNG Dynamics

Howard V Rogers, Senior Research Fellow OIES

EPRG Winter Research Seminar

10th December 201010th December 2010

OIES* Natural Gas Research Programme

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22

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Roadmap

• Analytical Framework & Methodology

• Current Gas Market Status and Outlook

• UK Gas Market Future Challenges.

LNG trade-flows in the Atlantic Basin, trends and discontinuities, Howard

Rogers March 2010, http://www.oxfordenergy.org/pdfs/NG41.pdf

LNG

European Supply Dynamics

Annual Contract Quantity

Contract Flexibility

Take or Pay Quantity

PipelineImportsPipeline

ImportsEuropean

Domestic Production

Take or Pay Quantity ImportsImportsEuropean

Monthly Demand

Global LNG System -1

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

Asian Markets (Japan, Korea,

Global LNG

Supply

‘Normal’ Storage Inventory Level

(Japan, Korea, Taiwan, China, India)

North America

Domestic Production

Europe

Domestic Production




Pipeline Imports

PipelineImports

Global LNG System - 1

Relative Flow between Europe



Global LNG

Supply


Relative Flow between Europe and North America determined by arbitrage with (oil indexed) pipeline gas imports to Europe (within flexibility limits).





EuropeNorth America

Domestic Production

Domestic Production

Pipeline Imports

Arbitrage has lead to convergence between

US Price and European Oil Indexed Price –

Optimal for European Gas Importers.

PipelineImports





Global LNG

Supply






Contract Flexibility PipelineImports

EuropeNorth America

Domestic Production

Domestic Production

Pipeline Imports

More Pipeline Import to Europe = Storage

Overfill in US – Henry Hub de-links and is

lower than European Prices – Sub-Optimal

for European Gas Importers.





Global LNG

Supply







EuropeNorth America

Domestic Production

Domestic Production

Pipeline Imports

Lower Pipeline Imports to Europe = Storage

Underfill in US – Henry Hub de-links and is

Higher than European Prices. – Sub-Optimal

for European Gas Importers.

PipelineImports





Global LNG

Supply

Global LNG System Long







EuropeNorth America

Domestic Production

Domestic Production

Pipeline Imports

US Storage Overfill; HH de-linked and below

Europe oil-indexed prices. Europe Pipeline

imports at minimum. – Best Outcome within

Constraints

PipelineImports





Global LNG

Supply

Global LNG System Short






Contract Flexibility PipelineImports

EuropeNorth America

Domestic Production

Domestic Production

Pipeline Imports

US Storage Underfill; HH de-linked and

Above Europe oil-indexed prices. Europe

Pipeline imports at Maximum. – Best

Outcome within Constraints

Gas Prices 2007 - 2010

AGIP Proxy 15

20

25

mm

btu

Japanese cif LNG

Brent

Sources: Argus, BAFA, EIA, Own analysis

AGIP = Average German Import Price (Oil Indexed Gas)NBP = UK National balancing Point PriceHH = Henry Hub US Price

AGIP

HH

NBP

0

5

10

Jan - 07 Jul - 07 Jan - 08 Jul- 08 Jan- 09 Jul- 09 Jan- 10 Jul- 10

$/m

mb

tu

NBP

HH

AGIP

Japanese cif LNG

AGIP Proxy

European LNG Imports Jan 2005 – Oct 2010

200

250

300

mm

cm/d

ay

European LNG Imports

UK

Portugal

Source: Waterborne LNG

0

50

100

150

Jan-05 Jul-05 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10

mm

cm/d

ay

Italy

Greece

Belgium

Turkey

France

Spain

2,500

3,000

North Atlantic LNG Balance 2008 - 2013

Demand

North America LNG Imports

Europe Supply & Demand

Storage Inj./Withdrawal

0

500

0

500

1,000

1,500

2,000

mm

cm

/da

y

LNG Imports

% of TOP level achievedSources: IEA Monthly Data, Waterborne LNG, Own analysis

Domestic Production

Pipeline ACQ

Pipeline TOP @85% of ACQ

Pipeline imports (Russia, N Africa, Azerbaijan & Iran)

CY 08/09 CY 09/10 CY 10/11 CY 11/12

92% 102%98% 99%

CY 12/13

111%

Global Factors Influencing the European Market

European Domestic Production to 2000 - 2025

250

300

350

400

Others

Romania

bcm

a

0

50

100

150

200Italy

Germany

Denmark

Netherlands

Norway

UK

bcm

a

Sources: IEA, WoodMackenzie, National Grid, Dutch Ministry of Foreign Affairs, Energi Styrelsen, Own Analysis

Shale Gas - Dynamics

European Rig-Count - 2000 - 2010

10

20

30

40

50

60

70

80

Rig

Co

un

t

Gas Rig Count

Oil Rig Count

800 Shale Gas Wells/Year

0

10

Jan-0

0

Jan-0

1

Jan-0

2

Jan-0

3

Jan-0

4

Jan-0

5

Jan-0

6

Jan-0

7

Jan-0

8

Jan-0

9

Jan-1

0

Sources: IEA WEO 2009, Baker Hughes

Global LNG Supply Assumptions

2008 - 2025

400

500

600

700

Yemen

Venezuela

USA

Trinidad

Russia

Qatar

Peru

Papua New Guinea

Oman

Norway

Nigeria

Qatar

0

100

200

300

400

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025

bcm

a

Nigeria

Malaysia

Libya

Iran

Indonesia

Guinea

Egypt

Brunei

Bolivia

Australia

Angola

Algeria

Abu Dhabi

Sources: Waterborne LNG, Company Reports, Own analysis

Australia

Nigeria

200

250

300

350

bc

ma

Asian LNG Import Assumptions

ChinaIndia

Korea CAGR2010 - 2025

9.8%

11.6%

Total 3.5%

Japan

0

50

100

150

200

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025

bc

ma

India

Taiwan

Sources: IEA, WoodMackenzie, Own analysis

0.9%

1.7%

1.3%Japan

South Korea

Competing Sources of New Supply for Europe ?

3

4

5

6

7

8

9

10

$/m

mb

tu

Export Tax

Uncertainty Range

Upstream and

Transportation

Regas

19

0

1

2

3Regas

Transportation

Liquafaction

Upstream

*WEO2009, p482 plus 30% export tax.**WEO2009, p481 plus regas @$0.60/mmbtu.*** Broad estimate.

The Gas Exporter’s Conundrum

Export projects at

international prices

for govt revenue.

Domestic

residential and Low cost

Investment terms

for foreign

companies

tightened

Domestic Price rise

politically

Domestic supply

quota a

disincentive to

further export

investment as dev.

costs rise.

residential and

power sectors

developed at low

gas price.

Low cost

gas

reserves

discovered

Relatively low

number of skilled

jobs created.

politically

unacceptable, may

need to import

some gas at

international prices.

Potentially value

destructive if

creates glut of

petrochemicals

Demand booms at

low regulated prices

Industrial Sector

developed for

added value and

skilled

employment.

TimeTime

Gas exports

constrained

UK Future Supplies and Import Infrastructure

40

60

80

100

120

140

160

bcm

a

Actual Modelled

-60

-40

-20

0

20

40

2005 2010 2015 2020 2025

bcm

a

Production Norway Netherlands IUK imports LNG Ireland Exports IUK exports Demand

NB. Assumes storage in existing & under construction categories only (i.e. 5.7 bcm by 2014)

Sources: IEA, DECC, Waterborne LNG, own analysis

IUK

Flo

ws 2

00

5 -

20

25

-10

0

-50 0

50

10

0

15

0

20

0

Jan-05

Jun-05

Nov-05

Apr-06

Sep-06

Feb-07

Jul-07

Dec-07

May-08

Oct-08

Mar-09

Aug-09

Jan-10

Jun-10

Nov-10

Apr-11

Sep-11

Feb-12

Jul-12

Dec-12

May-13

Oct-13

Mar-14

Aug-14

Jan-15

Jun-15

Nov-15

Apr-16

Sep-16

Feb-17

Jul-17

Dec-17

May-18

Oct-18

Mar-19

Aug-19

Jan-20

Jun-20

Nov-20

Apr-21

Sep-21

Feb-22

Jul-22

Dec-22

May-23

Oct-23

Mar-24

Aug-24

Jan-25

Jun-25

Nov-25

mmcm/day

IUK

Flo

w

Ex

po

rt Ma

x

Imp

ort M

ax

With

BB

L L

ine

re

ve

rse

flow

Based o

n G

lobal B

ala

nce w

ith U

K S

tora

ge 5

.7bcm

in 2

014+

Actu

al

Mo

de

lled

-15

0

-15

0

-10

0

-50 0

50

10

0

15

0

20

0

Jan-05

Jun-05

Nov-05

Apr-06

Sep-06

Feb-07

Jul-07

Dec-07

May-08

Oct-08

Mar-09

Aug-09

Jan-10

Jun-10

Nov-10

Apr-11

Sep-11

Feb-12

Jul-12

Dec-12

May-13

Oct-13

Mar-14

Aug-14

Jan-15

Jun-15

Nov-15

Apr-16

Sep-16

Feb-17

Jul-17

Dec-17

May-18

Oct-18

Mar-19

Aug-19

Jan-20

Jun-20

Nov-20

Apr-21

Sep-21

Feb-22

Jul-22

Dec-22

May-23

Oct-23

Mar-24

Aug-24

Jan-25

Jun-25

Nov-25

mmcm/day

IUK

Flo

w

Ex

po

rt Ma

x

Imp

ort M

ax

With

BB

L L

ine

re

ve

rse

flow

So

urc

es: IE

A, D

EC

C, W

ate

rbo

rne

LN

G, o

wn

an

alys

is

UK

Sto

rage 5

.7bcm

in 2

014, ris

ing to

10.7

bcm

by 2

018

Actu

al

Mo

de

lled

Wind Intermittency Impact on Gas Fired Generation

Hourly wind speed

data at 15 UK

locations from

historical database

Generation

algorithm using

standard turbine

output curve

Impact on gas and

other generation

fuels/technologies

using future demand

and generation view.

Database of

existing and future

wind farms –

capacity, location

start-up timing

Construct

different future

capacity cases

Impact on short term

gas demand

Requirement for

additional salt cavern

storage

Ho

urly

Win

d G

en

era

tion

20

09

, 20

15

an

d 2

02

0

15

20

25

30

35

GWh/hour

0 5

10

1

170

339

508

677

846

1015

1184

1353

1522

1691

1860

2029

2198

2367

2536

2705

2874

3043

3212

3381

3550

3719

3888

4057

4226

4395

4564

4733

4902

5071

5240

5409

5578

5747

5916

6085

6254

6423

6592

6761

6930

7099

7268

7437

7606

7775

7944

8113

8282

8451

8620

20

09

20

15

20

20

GWh

Hours

Conclusions

• Global LNG System– Model valid but recession and US Shale gas growth (minimal LNG imports) has

eliminated trans-Atlantic arbitrage for time being.

– Analytical framework still highly useful for exploring European balance (LNg vs Pipeline imports ) as domestic production declines.

• Medium Term Outlook– De-linkage of Henry Hub and NBP could remain until 2014/15, with NBP arbitraging on

coal and oil-indexed price. However balance could soften periodically and therefore expect prices to be volatile.

– 2015 + system tightening due to Asian demand growth, European domestic production decline.

– 2015 + system tightening due to Asian demand growth, European domestic production decline.

– Will US shale growth plug the gap between demand and declining US and Canadian conventional gas ?

– Outlook for new sources of long distance gas trade uncertain; incremental new supplies will not be low cost.

• UK Market– Uncertainty on demand levels but rise in imports inevitable.

– Space heating market will require significantly more seasonal storage capacity.

– Wind power intermittency will require fast response from CCGT’s and more salt cavern storage.

Questions Welcome.

Thank You

for your attention.for your attention.

Howard V RogersSenior Research Fellow ,

OIES Natural Gas [email protected]

Howard V Rogers, Senior Research Fellow OIES EPRG Winter ... · • Current Gas Market Status and Outlook • UK Gas Market Future Challenges. ... European LNG Imports Jan 2005 –Oct

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