IHS Group
We are pleased to announce that on 10 October 2008
IHS completed the formal closing of its acquisition of
Global Insight inc.
•
The combined resources of IHS with Global Insight's depth of information
will provide a unique advantage to our clients as they make today's most
critical business decisions.
•
Other highly respected IHS Insight brands and resources include:
- Cambridge Energy Research Associates (CERA)
- IHS Herold
- Lloyd's Register – Fairplay
- The McCloskey Group
- Jane’s Information Group
Copyright © 2009 IHS Global Insight. All Rights Reserved.
Ofgem LNG Seminar – Impact of
LNG on UK gas supply and prices
Sam Shoro and Rebekah Bostan
Senior Consultants – European Energy Services
Wednesday 11th February 2009
Impact of the Global LNG Market on the UK
• Will there be enough import capacity?
• Will there be enough supply to meet potential
demand?
• Short term impact of the recession?
• Price implications?
Copyright © 2009 IHS Global Insight. All Rights Reserved.
Globalisation of the UK gas market
• UK Gas supply initially developed from
the North Sea in the 1970’s
- Priced at marginal cost
• Demand rose during the 1980’s because
gas was cheaper than oil
• Norwegian gas from the Frigg and other
fields introduced - but indexed to oil
NBP
• UK gas market liberalised between
1982-97 with the introduction of the
Network Code and the NBP
- This led to wholesale spot and forward
markets with prices based on gas trades
and the fundamentals of supply and demand
Copyright © 2009 IHS Global Insight. All Rights Reserved.
Globalisation of the UK gas market
• IUK Interconnector opened in 1998, linking
the UK market with Continental oil-indexed
prices
• BBL pipeline operational in 2006
• As indigenous UK gas production
declined, Norwegian/Continental
imports increased
- Linking UK prices further to oil
• Langeled came on line during
2007 and we saw the growing
influence of Russian gas
- Also oil-indexed
• The Isle of Grain LNG Terminal
commissioned in 2005, introduced
the influence of US Henry Hub
prices on the UK gas market
Copyright © 2009 IHS Global Insight. All Rights Reserved.
Globalisation of the UK gas market
• Expansion of Grain last year, and the commissioning of South Hook and Dragon this year will
open up the UK to a global market where events in Asia and the USA will impact on UK prices
• Trans-Atlantic arbitrage already has an influence on UK gas prices during the winter
• Last summer we saw the impact of record high Pacific basin prices on UK LNG deliveries
Atlantic
Basin
Copyright © 2009 IHS Global Insight. All Rights Reserved.
Pacific
Basin
What does a global LNG market mean for UK gas supply?
• Increased flexibility
• But the UK has low levels of contracted
supplies going forward leading to possible
high level of exposure to the global LNG
market
Copyright © 2009 IHS Global Insight. All Rights Reserved.
UK Balance – Increasing Import Dependency
120
bcm/yr
100
80
Import
Dependency:
60
2005 – 18%
40
2010 – 52%
20
2030 – 96%
0
2000 2005 2009 2010 2015 2020 2025 2030
LNG
Copyright © 2009 IHS Global Insight. All Rights Reserved.
Pipeline
Production
LNG will Deliver Increased Flexibility
•
•
•
Storage capacity increases planned (additional 2.9 bcm working volume)
Pipeline Capacity (new supply routes NOR and NET, increased capacity from IC)
LNG Infrastructure (potential 67 bcm new capacity)
100
bcm/yr
80
60
40
20
0
2000
2005
2009
Isle of Grain
Dragon LNG
South Hook LNG Expansion
Teeside LNG
LNG Imports
Copyright © 2009 IHS Global Insight. All Rights Reserved.
2010
2015
2020
Isle of Grain Expansion (1)
Dragon LNG Expansion
Port Meridian LNG
Teeside GasPort
2025
2030
Isle of Grain Expansion (2)
South Hook LNG
Canvey Island
Almwych, Angelesey
UK Reliance on LNG Spot
• Dependence on spot imports rise from 9% (2009) to 80% (2020)
• If contracts are renewed spot imports will still rise to 62% (2020)
• LNG spot imports could potentially make up 70% of total spot
imports - 3.2 bcm 2010 to 55.4 bcm by 2030
90
Spot Imports
Contracts
% Contracted
Capacity
80
70
23%
24%
26%
bcm/yr
60
50
40
44%
30
20
10
96%
0%
0%
2005
2006
0%
81%
0%
0
Copyright © 2009 IHS Global Insight. All Rights Reserved.
2007
2008
2009
2010
2015
2020
2025
2030
What does a global LNG market mean for UK gas supply?
•
Increased flexibility
•
But the UK has low levels of contracted supplies going forward
leading to possible high level of exposure to the global LNG
market
• Need to compete in a global LNG market
– will long-term liquefaction deliver?
• What about liquefaction development delays
- Africa?
Copyright © 2009 IHS Global Insight. All Rights Reserved.
Competing in Worldwide LNG Market
POTENTIAL GLOBAL LNG DEMAND
600
500
Americas
Asia Pacific
Middle East
Europe
bcm
400
POTENTIAL GLOBAL LNG SUPPLY
300
200
600
500
bcm
400
100
Africa
Europe
Russia
Asia-Pacific
Middle East
Americas
0
2005
300
200
100
0
2006
2010
2015
Copyright © 2009 IHS Global Insight. All Rights Reserved.
2020
2025
2030
2035
2006
2007
2008
2009
2010
2015
2020
2025
2030
Liquefaction Utilisation Rates
250
93%
84%
200
87%
81%
80%
82%
81%
76%
bcm/yr
65%
78%79%
76%
72%
67%
69%
64%
61%
57%
58%
150
53%
100
50
a
20 s
1
20 0
1
20 2
1
20 5
25
M
A
m
er
ic
Ea
s
20 t
1
20 0
1
20 2
1
20 5
25
id
dl
e
us
s
20 ia
1
20 0
1
20 2
1
20 5
25
A
fr
ic
20 a
1
20 0
1
20 2
1
20 5
25
ro
Eu
A
si
a
pe
/R
Pa
c
if
20 ic
1
20 0
1
20 2
1
20 5
25
0
Operational
Copyright © 2009 IHS Global Insight. All Rights Reserved.
Under Construction
Planned and Feasibile
GI View
Exports
Liquefaction Commissioning
60
Asia Pacific
Europe and Russia
Africa
Middle East
50
Americas
bcm/yr
40
30
20
10
0
2006
Copyright © 2009 IHS Global Insight. All Rights Reserved.
2007
2008
2009
2010-2015
2015-2020
Liquefaction Project Delays 2010-2015
250
200
bcm/yr
150
2
37
100
2
50
as
20
10
20
12
20
15
st
20
10
20
12
20
15
A
m
er
ic
Ea
M
id
dl
e
a
20
10
20
12
20
15
fr
ic
A
Eu
ro
A
pe
/
si
a
R
Pa
us
si
a
20
10
20
12
20
15
ci
fic
20
10
20
12
20
15
0
Operational
Under Construction
Copyright © 2009 IHS Global Insight. All Rights Reserved.
Planned and Feasibile
GI View
Exports
Series6
Expected Worldwide Spot Volumes Available
400
350
300
Bcm/yr
250
Main source of spot volumes:
Nigeria, Qatar, Algeria
– all within $4/mmbtu
200
150
100
50
0
2005
2006
2007
2008
2009
2010
2015
2020
2025
Algeria
Angola
Bolivia
Brunei
Egypt
Equatorial Guinea
Iran
Libya
Mauritania
Nigeria
Norway
Oman
Peru
Qatar
Russia
Trinidad and Tobago
UAE
USA
Venezuela
Yemen
Copyright © 2009 IHS Global Insight. All Rights Reserved.
What does a global LNG market mean for UK gas supply?
•
Increased flexibility
•
But the UK has low levels of contracted supplies going forward
leading to possible high level of exposure to the global LNG
market
•
Need to compete in a global LNG market – will long-term
liquefaction deliver?
•
What about liquefaction development delays - Africa?
• Therefore – potentially more price stability!
Copyright © 2009 IHS Global Insight. All Rights Reserved.
Marginal cost of LNG supply to Grain
$/mmBtu
0.0
1.0
2.0
3.0
4.0
Abu Dhabi
Brunei
Algeria
Yemen
Oman
Malaysia
Qatar
Equatorial
USA
Trinidad
Nigeria
Angola
Egypt
Libya
Iran
Indonesia
Venezuela
Norway
Peru
Russia
Australia
Copyright © 2009 IHS Global Insight. All Rights Reserved.
6.0
7.0
Feedgas Cost
Liguefaction Cost
Shipping Cost
Re-Gas Cost
27p/th
Source:
5.0
47p/th
8.0
What does a global LNG market mean for UK gas prices?
•
LNG will set the floor for the winter, and possibly the summer too (depending on
coal and carbon prices) as our import dependency grows
- The short term outlook is bearish, due to weakness at Henry Hub, and a lack of
demand from the US and Asia, caused by global recession
- Competition will increase from the Pacific once the recession is over
•
In the medium term, the influence of crude on UK gas prices will diminish as
liquidity increases on the Continental gas hubs and as they become price setting
locations. This will lead to the end of oil-indexation across Europe.
•
Prices will be driven by the fundamentals of global supply and demand, with
LNG linked to Henry Hub becoming a key source of Flexibility. If this is managed
well, along with storage and pipeline imports, then gas prices should stabilise.
•
80% of the UK’s LNG requirement from 2020 is un-contracted, and this constitutes
a major risk to the NBP price forecast.
- Wholesale gas prices can go up as well as down..
Copyright © 2009 IHS Global Insight. All Rights Reserved.
Current gas prices (Quarterly)
Historic
HistoricPrice
Price Development
Development -- Gas
Gas vv Crude
Crude
(€/MWh
(€/MWhor
or€/bbl)
€/bbl)
80
80
70
70
60
60
50
50
40
40
30
30
20
20
10
10
00
1Q
2Q
3Q
4Q
1Q
2Q
3Q
4Q
1Q
2Q
3Q
4Q
1Q
2Q
3Q
4Q
1Q
1Q
2Q
3Q
4Q
1Q
2Q
3Q
4Q
1Q
1Q
2006
2010
2006 2006
2006 2006
2006 2006
2006 2007
2007 2007
2007 2007
2007 2007
2007 2008
2008 2008 2008 2008 2009 2009 2009 2009 2010
Brent Crude (€/bbl)
Brent Crude (€/bbl)
Dutch
- TTF
(€/MWh)
Brent
Crude
(€/bbl)
Dutch
TTF (€/MWh)
LNG
EU-Terminal
(€/MWh)
Copyright © 2009 IHS Global Insight. All Rights Reserved.
Brent - Lagged (€/bbl)
Brent - Lagged (€/bbl)
UK - NBP
(€/MWh)
Brent
- Lagged
(€/bbl)
UK - NBP (€/MWh)
Germany (Troll - Emden)
Germany (Troll - Emden)
Henry Hub
(€/MWh)
Germany
(Troll
- Emden)
Henry Hub (€/MWh)
Impact of current drivers on the UK gas market
Key Drivers
Effect on UK Gas Market
•
Softening Crude Prices
Weaker EU oil-indexed prices from Q1’09
•
Global Recession
Reduced Industrial demand for gas
•
Gas into Power Sector
Reduced Demand for Gas
•
Softening Coal Prices
Reduced Demand for Gas
•
ETS – Weak post Kyoto Agreement
Coal Preferred to Gas
• Low EUA Price –dark/spark spreads
•
LNG Demand Weaker in US/Pacific
Increased LNG Supply for Europe
Link to Henry Hub
•
LNG Infrastructure Enhanced
Improved Flexibility
•
Fundamentals
Healthy Supply / Good Storage / End of Winter
Outlook is Bearish
Copyright © 2009 IHS Global Insight. All Rights Reserved.
Forward curves (Monthly/Quarterly)
Forward
Forward Gas
Gas Curves
($/m
m Btu)
($/m
m Btu)
(p/th)
(p/th)
110
110
16.00
16.00
Forward Prices
100
100
14.00
14.00
90
90
12.00
12.00
80
80
70
70
10.00
10.00
60
60
8.00
8.00
50
50
6.00
6.00
40
40
30
30
4.00
4.00
20
20
2.00
2.00
10
10
00
Jan-04
Jan-04
0.00
0.00
Jan-05
Jan-05
Jan-06
Jan-07
Jan-08
Jan-08
IHS -Global
Insight
NBP Forecast
NBP
Forward
CurveQ4'08
(06/02/09)
IHS
Global
Insight Q1'09 Henry Hub Forecast
Europe
Terminal
Copyright © 2009 IHS Global Insight. All Rights Reserved.
Jan-09
Jan-10
Jan-11
Jan-12
Jan-13
IHSGlobal
GlobalInsight
InsightQ1'09
Q1'09NBP
Henry
Hub Forecast
IHS
Forecast
Japan Terminal
Conclusion
• Will there be enough import capacity?
- Yes
• Will there be enough supply to meet potential demand?
- Yes
• Short term impact of the recession?
-
Project delays, but supply sufficient to meet reduced demand
• At what price?
- Bearish in the short term, stronger with more seasonality in the medium term
- Closer link between NBP and Henry Hub
Copyright © 2009 IHS Global Insight. All Rights Reserved.
Thank you
Sam Shoro
Senior Consultant – European Energy Services
sam.shoro@ihsglobalinsight.com
Rebekah Bostan
Senior Consultant – European Energy Services
rebekah.bostan@ihsglobalinsight.com