Otl kOutlook and Ch llChallenges for the World Oil and LNG Market · 2018. 1. 8. · Outlook for...

O tl k d Ch ll f thOutlook and Challenges for theWorld Oil and LNG MarketWorld Oil and LNG Market

December 8th, 2015

Public Lecture at Energy Commission Malaysia

December 8 , 2015

Ken Koyama, PhD

Chair of Energy Economics, Energy Commission at UNITEN

Chief Economist, Managing DirectorInstitute of Energy Economics Japan

©2015 Institute of Energy Economics, Japan

All rights reserved

Institute of Energy Economics, Japan

©2015 IEEJ, All rights reserved

Emerging landscape with

Ken Koyama, IEEJ, December 8th, 2015

Emerging landscape with regard to global energy market

Volatile crude oil price Impacts of Unconventional Oil & Gas Developmentp p

Impacts of US Shale Gas Revolution Impacts of US Energy Independence

Growing energy demand in Asia and its implication to global energy securityenergy security

Emerging concerns for energy supply constraints Geopolitical risks, resource nationalism and issues of market power

Ongoing “MENA crisis” “Iranian crisis” Ukraine crisis etc Ongoing MENA crisis , Iranian crisis , Ukraine crisis, etc. Lack of timely investment in resource development Importance of stability of energy transportation

Environmental challenges for sustainabilityg y Climate change and global environmental problems Local and regional environmental problems

Impacts of “March 11th” and Japan’s Energy Policy Review

2


Crude Oil Price VolatilityKen Koyama, IEEJ, December 8th, 2015

yCrude oil price plunged from 100$, but continued to be volatile

(US$/bbl)

130

150 (US$/bbl)

Continued up-swing in prices

Price rise unders geopolitical Euro Zone crisis

hit oil price

Impact of ISIS

110

130 Price surge after

MENA crisisBrent

ISIS

90 WTI

70

Price drop

30

50

Rebound from the bottom

Price drop under Euro

Supply-demand softening and OPEC

decision to leave price fall

3Source: NYMEX data, etc.

Jan-

07A

pr-0

7Ju

l-07

Oct

-07

Jan-

08A

pr-0

8Ju

l-08

Oct

-08

Jan-

09A

pr-0

9Ju

l-09

Oct

-09

Jan-

10A

pr-1

0Ju

l-10

Oct

-10

Jan-

11A

pr-1

1Ju

l-11

Oct

-11

Jan-

12A

pr-1

2Ju

l-12

Oct

-12

Jan-

13A

pr-1

3Ju

l-13

Oct

-13

Jan-

14A

pr-1

4Ju

l-14

Oct

-14

Jan-

15A

pr-1

5Ju

l-15

Oct

-15


World Oil DemandKen Koyama, IEEJ, December 8th, 2015

2014 Demand growth is very low…3.50

（Million B/D)3.20

1.05 1 822.50

1.41 1 03

1.47 0.83 1.29

0.84

1.82

1.21 1.50

1.03

0.50

-0.59

-1.08

-0.50

North America Europe

-2.50

-1.50 China Other AsiaMiddle East Other DCTotal

4Source: IEA “Oil Market Report”

2.50 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

©2015 IEEJ, All rights reservedNon OPEC ProductionStrong 2014 Non-OPEC growth lead by US


Strong 2014 Non-OPEC growth lead by US

Non-OPEC Growth by Region Non-OPEC Growth by Country（MB/D) 1 00 0 50 0 00 0 50 1 00 1 50 2 00（MB/D）

2.39 2.5

3North America Europe FSULatin America Asia Pacific OthersTotal

（MB/D)

1.70

0.28

-0.42

0 11

-1.00 -0.50 0.00 0.50 1.00 1.50 2.00

US

Canada

（MB/D）

1.44 1 2 1 33

1.5

2 0.11

0.04

0.11

0.00

-0.05

Russia

China

Growth

0 38

0.61 0 39 0.41

1.27 1.33

0.5

1 0.23 0.13

Brasil

2012

2013Declice

(0.14)

0.38 0.29

(0.14)

0.39 0.41

-0.5

0-0.08

-0.03

-0.09

-0.05

Mexico

UK

2013

2014

2015(0.65)

-1 5

-1

0.05

0 17

-0.08 Norway

OPEC NGL

2016


-1.5 2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

0.17 0.25

OPEC・NGL


Call on OPEC vs. OPEC ProductionKen Koyama, IEEJ, December 8th, 2015

Call on OPEC vs. OPEC Production653,300

（10,000B/D) （Days)

3 100

3,200OECD Inventory days

Call on OPEC

OPEC P d ti

3,000

3,100 OPEC Production

55

2,800

2,900

2,600

2,700

452,500



Background to Saudi’s Decision


Background to Saudi s Decision

Protecting prices by cutting production is self-defeating.

Tough lessons from the swing producer experience

“The market will naturally balance itself out.”

Various “strategic thoughts” ≠ “conspiracy theory”

Robust financial resources to withstand low prices for some time

Searching for new price equilibrium while maintaining its market share

Market lost its foothold and plummeted.

7


US Oil Production and Rig Count


US Oil Production and Rig Count180010000

(1,000B/D) (Counts)

16009000

9500 Crude oil production

Oil rig count

1200

1400

8000

8500

10007000

7500

600

800

6000

6500

4005000

5500

2010/1/1 2011/1/1 2012/1/1 2013/1/1 2014/1/1 2015/1/1

8Source: Data from EIA and Baker Hughes


Low Oil Price and US LTOKen Koyama, IEEJ, December 8th, 2015

Low Oil Price and US LTO

US LTO, relatively high cost oil productionBut cost differs greatly by area well and producer But cost differs greatly by area, well and producer

“Breakeven cost” vs “Short-run marginal cost”Rig counts decline dramatically but shift to quality Rig counts decline dramatically, but shift to quality

Financial problems of shale oil producersLow oil price results in lower production cost Low oil price results in lower production cost

Existence of uncompleted wells

US LTO shows resilience to low oil price

9

LTO production may bounce back if price goes up


Outlook for Near-Term Global Oil Market


Outlook for Near-Term Global Oil Market

Current price level likely to remain in the near term due to prevailing over-supply situation.

The impact on the production of high-cost oil (US shale, etc.) is “emerging”, but full scale impacts will be felt later this year.

But US LTO production may be resilient and start to pick up again if oil price goes beyond a certain level.

What can be a “surprise”? OPEC decision?

Supply disruption in oil producer countries?

Economic downside risks?

Return of Iranian oil? Return of Iranian oil?

Current price level is not sustainable for mid-term. Market may head for 70-75$ in 2020 10


Outlook for Oil Supply-DemandKen Koyama, IEEJ, December 8th, 2015

Outlook for Oil Supply Demand3.50100

（Over supply）

（Million B/D）（Million B/D）

2.29 2.50

3.00

98

99

Oil supply

1 041.31

1.46 1.61 1.24

1 34

1.50

2.00

96

97

Oil Demand

0.28

1.04 0.90 1.34

1.02

0.50

1.00

94

95 Oil Demand

(0.09)(0.24) -0.50

0.00

92

93

Balance (Supply minus deamnd)

-1.50

-1.00

90

91

2014 1Q 2Q 3Q 4Q 2015 1Q 2Q 3Q 4Q 2016 1Q 2Q 3Q 4Q

( pp y )

（Excess demand）

11Source: Outlook by the Author based on data from IEA “Oil Market Report”

2014-1Q 2Q 3Q 4Q 2015-1Q 2Q 3Q 4Q 2016-1Q 2Q 3Q 4Q


Pros and Cons of Low Oil Prices: Macro


Pros and Cons of Low Oil Prices: Macro

Positive for the global economy in general

G t b fit f (hi hl i t d d t) t i Great benefits for consumers (highly import-dependent) countries

Also benefits for energy-importing companies and users

b k ff l ’ li Tax-break effect on people’s lives

Serious negative impact on resource-rich countries

Economic instability of resource-rich countries could precipitate financial and credit crisis.

Risk of economic and financial crises spreading internationally

Most vulnerable: Russia, Venezuela, Nigeria, etc. 12


Impact of Low Oil Prices: Energy


Impact of Low Oil Prices: Energy

Crude oil prices: “the deeper the valley, the higher the peak”?p p y g p

Destabilizing oil-producing and resource-rich countries

Adverse effect on investment in energy supply (high-cost PJs)gy pp y ( g )

Difficulty in decision-making on choice of energy, LNG price formula, etc.

Restructuring and institutional issues of domestic and overseas energy industries (Corporate integration and asset reshuffling)

Increased need for cost reduction and higher efficiency

13

©2015 IEEJ, All rights reservedKen Koyama, IEEJ, December 8th, 2015

Need for Higher Cost Oil ProductionNeed for Higher Cost Oil Production14 million b/d

10

12

8

10

3.5~11 5

1.5

4

6 2.0~10.0

11.5

6.0 3.0 2

0Demand growth

until 2020Supply surplus as

of 2015Supply growthfrom MENA

Depletion fromexisting fields

Incrementalsupply from

higher cost fields

14Source: Prepared by IEEJ based on IEA data and others

higher cost fields


Oil consumption by region Reference Scenario (solid)Advanced Technologies Scenario (dotted)


Saving: 839 Mtoe(15%)

5000

Mtoe

799630

62%49%

Increase from 2013 to 2040

20134,210 Mtoe

(15%)

Others

400035%

31%

-67 -76

-5% -6%Asia N.America Europe Others

(+Bunker)

(87 Mb/d)2040Reference ScenarioEurope

(+Bunker)3000

14%

13%

19%

5,496 Mtoe(114 Mb/d)

Advanced h l i i

N.America1000

2000

37%

20%

Technologies Scenario4,658 Mtoe(96 Mb/d)

Asia01971 1980 1990 2000 2013 2020 2030 2040

30%

The share of Asia in the world oil consumption increases from 30% in 2013 to 37% in 2040. About 62% of the global oil growth takes place in Asia.

In the Advanced Technologies Scenario, the world oil consumption is 840 Mtoe (15%) In the Advanced Technologies Scenario, the world oil consumption is 840 Mtoe (15%) lower in 2040 compared to the Reference Scenario.

15Source: IEEJ, “Asia/World Energy Outlook 2015”


b/d

Oil Production Outlook ReferenceAdv. Tech.


38 100

120 Middle East OPECOther OPECNon‐OPEC

Mb/d

201337 mil. b/d

OPEC

1012 12

27 27

33

32

60

80

100 /↓

2040Ｒｅｆｅｒｅｎｃe Adv.Tech50 il b/d 42 il b/d

50 55 58 61

51

10 10

10

40

60 50 mil. b/d 42 mil. b/d(14mil. b/d inc.) (6mil. b/d inc.)

Non-OPEC

0

20

Reference Adv.Tech.

201350 mil. b/d

↓20402013 2020 2030 2040 2040

Ｒｅｆｅｒｅｎｃe Adv.Tech

61 mil. b/d 51 mil. b/d(11mil. b/d inc.) (1mil. b/d inc.)

Reference Adv.Tech.

Middle East OPEC 44% 68%Other OPEC 10% 7%

Share of the worldoil production

increase ( / ) ( / )

50% of the increases in world oil consumption is met by OPEC. OPEC`s share of world oil production in 2040 increase to 44%.

However, the domestic oil consumption in the Middle East OPEC is also projected to increase significantly.

Non-OPEC 42% 11%increase

, p p j g yEnhancement of production capacity and improvement of energy efficiency in the Middle East OPEC is necessary to ensure availability of oil supply to the world market.



Oil Demand and Supply in Asia ReferenceAdv. Tech.


Net Oil Import

2013

2,500

Demand Production Net Import 82%

Mtoe 80%Adv.Tech.

201318.06MB/D

↓1 483

1,771

2,053

1,688

2,000

70%

75%

79%

2040Reference34.91MB/D

1,254

1,483

873

1,118

1,396

1,000

1,500

52%51%

70%

(1.9times)

Adv. Tech.477

618

227301

380 365 375 365250

317

873

500

,

29.52MB/D

(1.6times)

227 250

01980 1990 2013 2020 2030 2040

In the Reference Scenario, net oil import is projected to expand to 1,688 million ton (34.91 mb/d) in 2040 from 873 million ton (18.06 mb/d) in 2013. With the sluggish oil production of in Asia area (China, India, Indonesia), net oil import ratio reaches 82% in 2040.

In the Advanced Technologies Scenario, oil demand grows at a relatively slow rate, but net oil import ratio still increases to 80% in 2040.

Source: IEEJ, “Asia/World Energy Outlook 2015” 17


Oil and Natural Gas Net Import/Export Reference Scenario


10

20

30

402013 2040

Reference

Mb/d

→2040 net importer2040 net exporter←

Oil-30

-20

-10

0

-40

-30

Middle East Non OECD

Europe/FSU

Africa L.America N.America China India OECD

Europe

ASEAN Japan,

Korea,

Taiwan

Other Asia Oceania

Bcm 2040 netexporter← →2040 net importer

Natural Gas 0

200

400

6002013 2040 Reference

2040 net exporter← →2040 net importer

-600

-400

-200

0

Non OECD Middle N America Africa Oceania ASEAN Other AsiaL America India Japan China OECD

While oil consumption expands in Asia up to 2040, North America turns into an exporting region.Oil d i i i h Middl E i i i i d i h A i i i

Non OECD Europe/FSU

Middle East

N.America Africa Oceania ASEAN Other AsiaL.America India Japan, Korea, Taiwan

China OECD Europe

Oil production increase in the Middle East is imperative in correspondence with Asian consumption increase. Asia also increases natural gas imports. Exports from North America increase largely.



We may see lower prices than in the Reference Scenario


❖ Background of the scenarios ❖ Assumption of oil priceReference Lower Price

D d

150Demand Energy

conservation and fuel switching in transport sector progress along with

Strong energy conservation and fuel switching by non-fossil fuel progress

100100

progress along with the trend.

progress.

Supply Conventional resourcesD l t i

Conventional resourcesC titi

75

70 7550

$/bb

l

Development in each country follows its historical trend.Unconventional

Competition among low-cost producers such as OPEC, Russia, etc. continues

50

Unconventional resourcesProduction growth in the United States declines in

continues.OPEC effectively loses its power as a cartel organisation

01990 2000 2010 2020 2030Reference Lower Price

Easy supply-demand balance due to factors in supply and demand sides is assumed in the Lower

i S i l il i i 2030 i h

States declines in and after 2020s.Slow development is seen in other countries

organisation.Unconventional resourcesReach the highest levels both inside

Note: Future prices are in $2014.

Price Scenario. Real oil price in 2030 in the scenario is premised to be cheaper by 25% than in the Reference Scenario.

19

countries. levels both inside and outside the United States.

Source: IEEJ, “Asia/World Energy Outlook 2015”


Depressed production in traditional exporting regions


❖ Crude oil production in selected regions [2030]

❖ Natural gas production in selected regions [2030]

1141 240

0.860.74

1.14 1.11

071

0.94 0.98

0.8

1.0

1.234.7

29.230

40

0.370.35

0.650.71

0.4

0.6

0.8

Tcm

11.015.4

13.516.9

9113.6 13.8

17.3

10

20

Mb/

d

0.0

0.2

Africa Middle Asia Former North

9.1

0

10

Africa Former Latin North Middle Africa Middle East

Asia Former Soviet Union

North America

Reference Lower Price 2013

Africa Former Soviet Union

Latin America

North America

Middle East

Reference Lower Price 2013

Global oil supply in 2030 is 96.5 Mb/d, increased by just 7.7 Mb/d from today, due to the assumed strong energy conservation and fuel switching to other energies. Production growth in the Middle East is only 1 0 Mb/d squeezed by large increases in unconventional oil

Reference Lower Price 2013Reference Lower Price 2013

Production growth in the Middle East is only 1.0 Mb/d, squeezed by large increases in unconventional oil production in North America and others. Russia faces production reduction by 0.8 Mb/d.



Low oil price impact on exporter and importer


❖ Crude oil net imports/exports in selected regions [2030]

MiddleEasts

-457

Africa

Former Soviet Union

Middle East

Net e

xpor

ts

Lower Price

Quantity

-148

115

WesternEurope

China

Africa

orts

N Quantitycontribut ionPricecontribut ion

-115

-217

102

Japan

United States

Western Europe

Net i

mpo contribut ion

Reference

2014

-102

-150

50

0 500 1,000

Japan

$ billion

2014-50

Oil saving, lower oil price and wider use of unconventional resources make international trade of crude oil* 36% less, to $2.8 trillion from $4.4 trillion, in the Reference Scenario. * Among the modelled 15 regions. Nominal value.

$ billion

China is the biggest winner in terms of saving of net import spending, acquiring $217 billion. The United States follows with $150 billion. Net export earning of the Middle East decreases by $457 billion.



Lower oil price impact on global GDP


❖ Changes in real GDP [2030, compared with the Reference Scenario]European Union United StatesIndia

Japan ChinaOceania

Otherswith

Japan China OthersGlobal average2%

ompa

red

war

io)

ASEAN0%

Scen

ario

(co

renc

e Sce

na

Russia

MiddleEast

-2%

wer

Price

Sc

Refe

r

Middle East-4%

0 20 40 60 80 100

Low

Reference Scenario ($2010 trillion)

Lower prices and consumption of oil and natural gas vitalise importing countries’ economies through less outflow of national welfare and improvement of real purchasing power. The global economy expands by 1.9%.The situation exerts downward pressure on oil producing countries in the Middle East and others whose

Reference Scenario ($2010 trillion)

The situation exerts downward pressure on oil producing countries in the Middle East and others, whose revenue depends heavily on energy exports.



Instability in the Middle EastKen Koyama, IEEJ, December 7th, 2015

Iraqi situations after the warUncertainty over

Tensions on Iran Nuclear

d l t

Rising energy demand and its

Terrorist AttacksIn Paris

Uncertainty over Middle East Peace issues

development demand and its impacts

Post-sanctionIran?

Immigrants toEurope

Outlook for energy demand in Middle East

I t f1,200

Other Middle East

Mtoe

Gaza crisis Rise of Islamic State

Iran?Russia-Turkey

Tension

Impacts of“Arab Spring”

600

800

1,000

Other Middle EastOmanQatarKuwaitIraqUAESaudi ArabiaIran

28%

9%

9%

UAEIraq

6%

0

200

400

1980 1990 2000 2010 2020 2035

31%

33%

27%

10%

Iran

Saudi Arabia

6%

Syria, Yemen, Egypt…

Terrorism, threats to energy

production and

Growing Anti US sentiments in Arab and Islam society

Domestic challenges for

existing rulers and

23

exportsand Islam society regimes

Source: Prepared by IEEJ


Natural Gas Consumption by Region ReferenceAdv. Tech.


1.08 bil. toe

(23％)R d ti

5000Mtoe

885

647

Increase from 2013 to 2040

20132.9 billion toe

(3 5 trillion m3)

Reduction

3000

400028%

1.8 bil.toe153 154

647

48%

8% 8%

35%

(3.5 trillion m3)(2.4 bil. tons LNG)

↓2040

Reference

EuropeOthers(+Bunker)2000

3000

18%

24%24%

Asia N.America Europe Others

Reference4.7 billion toe

(5.8 trillion m3)(3.9 bil. tons LNG)

Ad T hAsia

N.America1000

30%

18%

24%

34%

Adv. Tech.3.7 billion toe(4.4 trillion m3)

(3.6 bil. tons LNG)

Asia01971 1980 1990 2000 2013 2020 2030 2040

18%

The world natural gas consumption is expected to increase from 3.5 trillion cubic meters (tcm) in 2013 to 5.8 tcm in 2040, a 1.6-fold increase.

In the Advanced Technologies Scenario, natural gas consumption is 1.4 tcm lower than the Reference S i D i j d i l i i i h Ad dScenario. Despite projected savings, natural gas consumption continues to grow in the Advanced Technologies Scenario suggesting further needs of energy resources development.

Source: IEEJ, “Asia/World Energy Outlook 2015” 24


LNG imports Outlook Reference Scenario


400(million ton)

300

200

100

02014 2040 2014 2040 2014 2040 2014 2040 2014 2040

Asia Europe America Middle East Africa

World LNG demand expands from 239 million tons in 2014 to 547 Mt in 2040 (2.3 times). Asia’s LNG demand increases by 214 Mt, accounting for about 70% of the world’s LNG demand

growth, whereas the growth in Europe (56 Mt) accounts for around 20%. LNG import from North bAmerica to Latin America increases by 6 Mt.

LNG supply capacity is sufficient to meet demand if new LNG projects starts on schedule in the future.



ff d i i


Factors to affect LNG Demand in Asia

Economic growth Economic growth Lower price

F t f l Future of nuclear power Competition against coal Need to protect environment Pipeline vs. LNGpe e s G

26


Global LNG Balance up to 2016Ken Koyama, IEEJ, December 8th, 2015

Ample supply continues to exist in the short term

350 100万トンMillion tonnes

239 245 246 254272 287

250

300

100

150

200

0

50

100

需要供給需要供給需要供給

2014年実績 2015年予測 2016年予測

日本アジアオセアア欧州米州中東アフリカ

Demand DemandDemandSupply Supply Supply

2014 20162015

27

日本アジア・オセアニア欧州米州中東アフリカ

Source: IEEJ, July 2015

Japan Asia Pacific NA ME AfricaEurope


World gas prices by regionPrice gaps by regions significantly narrowed


g p y g g y

135.14 140 24

Units: USD / million Btu (left), USD / bbl crude oil equivalent (right)

18.04

126.90

120

18

20

22 Henry Hub

NBP

18.04

80

100

14

16

18 Japan LNG average

Platts JKMTM

JCC

9.48 60 10

12

8.67

40

6

8

2.34

0

20

0

2

4

5 7 1 7 1 7 1 7 1 7 1 7 1 7 1 7 1 7 1 7 1 7 1 7 1 7 1 7 1 7 1 7 12

28Source: US EIA and IEA

5 7 1 7 1 7 1 7 1 7 1 7 1 7 1 7 1 7 1 7 1 7 1 7 1 7 1 7 1 7 1 7 12

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015


LT LNG Supply-Demand Outlook for Asia


pp ySupply potentials can continue to exceed demand

600

大西洋市場からの転売可能量

計画中プロジェクト

100万トンMillion tonnes

Supply from AtlanticProjects under planning

400

500

計画中プロジェクト

HOA/SPA締結済プロジェクト

既存プロジェクト

高需要ケース

Projects under planningProjects with SPA/HOAExisting ProjectsHigh demand case

300

400 低需要ケースLow demand case

200

（出所）日本ネルギ経済研究所

100

29

（出所）日本エネルギー経済研究所0 2010 2015 2020 2025 2030


Growing expectations for US LNG exportsKen Koyama, IEEJ, December 8th, 2015

Export projects with total capacity of more than 200 mil tonnes are on the list.

Government export permission over 80 million tonnes. FERC permission exceeded 50 million tonnes.

LNG exports projects in North AmericaUS natural gas production outlook

Source: FERC; DOESource：EIA 30


Gas development PJs in East Siberia and Sakhalin


Sakhalin - Khabarovsk -Chayanda

Gas development PJs in East Siberia and Sakhalin

サハリン・センター

サハリン3

既存

既存チュメニ州

Vladivostok Gas P/L（Existing）

Kovykta

Chayanda

Gas FieldSakhalin 1

ヤクーツク・センターサハリン1、2

リ

ティンダユジノサハリンスク

2007-2009

2016-2030

2016-2030

既存既存

クラスノヤルスク・センター

北部 2013-2015Gas Field

Sakhalin 3

ブラゴベシチェンスク

スコヴォロディノ

ハバロフスク

2007-2009

イルクーツク・センター

アンガルスク

クラスノヤルスク

Vladivostok LNG

Sakhalin 23rd Train

ウラジオストック→

大慶ナホトカ

ピョンヤン

アンガルスク

China-Russia PL gas deals

2007-2009

2013 20152010-2012

ガスパイプライン

建設・ガス田の開発

の時期北京ソウル

ピョンヤン

Russia～DPRK～

ROK Gas P/L2013-20152016-2030

（Source） Prepared by IEEJ based on Eastern Gas Program of Gazprom

ROK Gas P/L

31


Key Points for the Asian LNG MarketUp to 2020 and be ond


Up to 2020 and beyond

Demand sideDemand side Demand in Japan will decline subject to the degree of restart of nuclear power plants.p j g p p Demand in Korea (and Taiwan) will depend on nuclear, competition with coal and economy. China’s gas demands may grow, spurred by action to curb air pollution. But key question is

economic growth trend. LNG demands will basically expand, but economy, Russian PL and d l ld l hdomestic supplies could slow growth.

Overall, Asia’s LNG demand will see some growth ← The impact of the fall in LNG price? Competitive and flexible procurement of LNG will be a key.

S l idS l id Supply sideSupply side US LNG export permission will exceed 80 million tonnes. New LNG projects are to be launched in Australia, possibly in Canada and East Africa as well. Russian gas exports (PL) to China may expand. Russia will try to reinforce sales in Asian

markets, depending on the Ukraine situation. Risk factors on the supply side include geopolitical situation and others.

O ll th i h ( th h) l t ti l t th Overall, there is enough (or more than enough) supply potential to cover the increase in demand.→ The impact of the fall in oil and LNG prices? 32


The 4th LNG Producer- Consumer Conference


More than 1,000 participants from more than 50 countries, regions, etc. More than 1,000 participants from more than 50 countries, regions, etc. i l di Mi i t t ti f LNG l t d i d t ii l di Mi i t t ti f LNG l t d i d t iincluding Ministers, top executives of LNG related industries.including Ministers, top executives of LNG related industries.

The first occasion to discuss the sound development of LNG market The first occasion to discuss the sound development of LNG market under lower oil and Asian LNG prices.under lower oil and Asian LNG prices.pp

Issues which attracted the participants’ attention include: Japan’s long Issues which attracted the participants’ attention include: Japan’s long term energy mix; China’s economic slowdown and lower LNG demand; term energy mix; China’s economic slowdown and lower LNG demand; forthcoming LNG supply growth from US and Australia; and impacts offorthcoming LNG supply growth from US and Australia; and impacts offorthcoming LNG supply growth from US and Australia; and impacts of forthcoming LNG supply growth from US and Australia; and impacts of low oil price on both supply and demand of LNG. low oil price on both supply and demand of LNG.

Under the prevailing uncertainties, LNG buyers highlighted the Under the prevailing uncertainties, LNG buyers highlighted the importance of LNG procurement at competitive price and greater importance of LNG procurement at competitive price and greater flexibility.flexibility.

Both producers and consumers of LNG agreed the importance toBoth producers and consumers of LNG agreed the importance to

33

Both producers and consumers of LNG agreed the importance to Both producers and consumers of LNG agreed the importance to overcome the challenges to realize the sound development of LNG overcome the challenges to realize the sound development of LNG market in Asia. market in Asia.


Rationale of JCC pricing questioned


Rationale of JCC pricing questioned

The rationale for JCC pricing existed at the time of its introduction (gas, The rationale for JCC pricing existed at the time of its introduction (gas, ti ith il i t )ti ith il i t )competing with oil in power sector)competing with oil in power sector)

However, the past market development made the rationale diminishing, However, the past market development made the rationale diminishing, as oil is already replaced by alternative energy in power sector and thus as oil is already replaced by alternative energy in power sector and thus y p y gy py p y gy pnot competing with oilnot competing with oil

Periodical price reviews in JCC contracts not quick enough to reflect Periodical price reviews in JCC contracts not quick enough to reflect demand/supply of gasdemand/supply of gasdemand/supply of gasdemand/supply of gas

JCC pricing determines the level and volatility of Asian LNG price, not in JCC pricing determines the level and volatility of Asian LNG price, not in relation to gas supplyrelation to gas supply--demand situationdemand situation

Thus, Asian buyers started to explore new ideas for gas pricing that can Thus, Asian buyers started to explore new ideas for gas pricing that can better reflect gas market fundamentals particularly after 2011better reflect gas market fundamentals particularly after 2011

But recent low oil price environment made things more complicatedBut recent low oil price environment made things more complicated

34

But recent low oil price environment made things more complicated. But recent low oil price environment made things more complicated.


LNG Pricing Options for AsiaKen Koyama, IEEJ, December 8th, 2015

Gas on gas competition pricing IndexationHybridsDomestic Hubs

in AsiaHenry Hub,

NBP Spot LNG Oil Other fuels(Electricity, Coal)

• Possibly the

Advantages

• Possible toreflect regional market balance

• Already available• Possible lower prices at high

• Already available

quickest solution through modification of slope, S-curve,

• Rational for power generationbalance oil price period etc.

• Higher • Higher

Disadvantages

• Not yet available• Higher volatility

Higher volatility• Asia market balance not reflected

Higher volatility• Limited liquidity(so far)

•Gas market balance not reflected

• Lack of power market liquidity

Rationality of JCC pricing being questionedLow oil price environment a new complicated factor

reflected (so far)

35

Low oil price environment, a new complicated factor Establishing benchmark pricing(s) through hubs in Asia and/or spot LNG pricing most

rationale for Asia in the long run 35


Diversification of pricing likely to evolve


Diversification of pricing likely to evolve

Given the dominance of the existing contracts, JCC pricing likely to Given the dominance of the existing contracts, JCC pricing likely to i d i t h i i A i t l t t l 2020i d i t h i i A i t l t t l 2020remain dominant mechanism in Asia at least up to early 2020sremain dominant mechanism in Asia at least up to early 2020s

But tide is changing:But tide is changing: Prevailing overPrevailing over--suppled marketsuppled market Prevailing overPrevailing over suppled marketsuppled market Inflow of US LNG with HH pricing will increase in AsiaInflow of US LNG with HH pricing will increase in Asia Spot/shortSpot/short--term trading continue term trading continue to growto grow Initiatives to create hubs in AsiaInitiatives to create hubs in Asia Power and gas market reforms in Japan and AsiaPower and gas market reforms in Japan and Asia

M j A i b h JERA h t t t di if i iM j A i b h JERA h t t t di if i i Major Asian buyers such as JERA have a strategy to diversify pricingMajor Asian buyers such as JERA have a strategy to diversify pricing Buyers continue to search for alternatives to JCC and the share of JCC Buyers continue to search for alternatives to JCC and the share of JCC

pricing will be reducedpricing will be reduced

36

p gp g So far there is no clear answer as to what is the best alternative, and So far there is no clear answer as to what is the best alternative, and

various options will be tested by buyers and sellersvarious options will be tested by buyers and sellers


GDP Growth Trajectories


GDP Growth Trajectories

AAGR (2012 2040) of Lower Growth Scenario30

AAGR (2012-2040) of Lower Growth ScenarioChina: 3.9% (5.4% in Reference Scenario) India: 5.3% (6.2%)

20

rilli

on

ChinaChina [Low Growth]USA

$201

0 tr

USAEuropean UnionIndiaI di [L G th]

10India [Low Growth]Japan

01990 2000 2010 2020 2030 2040

37

1990 2000 2010 2020 2030 2040



❖ N t E t (I t) f C d OilImpacts of Low Growth (1)


❖ Net Export (Import) of Crude Oil

Middle East

2040, EnhancedDevelopmentS i

Former Soviet Union

Middle East

port

s

Hypothetical case: Middle East plays asa swing producer in

Scenario

Africa

Soviet Union

Net

exp

2040, Reference

Low Growth andReform Scenario

Latin America

ts

2040, Low Growthand Reform

2012

India

China

et im

port 2012

0 10 20 30

India

Ne

Мb/d

38

Мb/d

Middle East exports will be affected most seriously, reduced by 2.5-6.9 MBD in Reference Scenarios in 2040.Source: IEEJ, “Asia/World Energy Outlook 2014”


Impacts of Low Growth (2)❖ N t E t (I t) f N t l G


FormerS

❖ Net Export (Import) of Natural Gas

Middle East

Soviet Union

port

s

Oceania

Net

exp

2040, Reference

ASEAN

s

2040, Low Growthand Reform

2013

India

China

et im

port

s

0 100 200 300 400 500 600

India

Ne

Bcm

FSU export will be affected most seriously, reduced by 18% from Reference scenario in 2040.39

Bcm



Conclusion


Conclusion

Oil price likely to remain volatile, while oil market ti t l i th h t tmay continue to see over supply in the short term

Asia LNG market also sees over supply situation in the Asia LNG market also sees over supply situation in the short/medium term. But uncertainties emerging under low oil price environment.

But in the medium and long term, both oil and LNG market have multiple uncertainties. The pendulum p pmay swing back.

40

Otl kOutlook and Ch llChallenges for the World Oil and LNG Market · 2018. 1. 8. · Outlook for...

Documents

Transcript of Otl kOutlook and Ch llChallenges for the World Oil and LNG Market · 2018. 1. 8. · Outlook for...