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Current Situation and Outlook for the Oil & Gas (LNG) Market
S i 2Session 2IEEJ/CNPC ETRI Joint Symposium
November 8th, 2017
Dr. Ken Koyama
Chief economist and managing directorInstitute of Energy Economics, Japan
©2017 Institute of Energy Economics, Japan
All rights reserved
IEEJ:November 2017 © IEEJ 2017
©2017 IEEJ, All rights reserved
Crude Oil Price VolatilityKen Koyama, IEEJ, November 8th, 2017
yCrude oil price continued to be volatile
(US$/bbl) Collapse
140
(US$/bbl) pafter
Rehman shock
Euro Zone crisis hit oil
price
Supply-demand softening and OPEC
100
120Continued up-
swing in Price surge
after MENA
Brentg
decision to leave price fall
80
100 after MENA
WTIWTI hit 26$ in
Feb 2016
60 Rebound from the
i d d
20
40
7 7 7 7 8 8 8 8 9 9 9 9 0 0 0 0 1 1 1 1 2 2 2 2 3 3 3 3 4 4 4 4 5 5 5 5 6 6 6 6 7 7 7 7 8 8 8 8
Price drop under Euro crisis
2Source: 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
Jan-
16A
pr-1
6Ju
l-16
Oct
-16
Jan-
17A
pr-1
7Ju
l-17
Oct
-17
Jan-
18A
pr-1
8Ju
l-18
Oct
-18
IEEJ:November 2017 © IEEJ 2017
©2017 IEEJ, All rights reserved
OECD Oil InventoryKen Koyama, IEEJ, November 8th, 2017
OECD Oil Inventory2,900
(Million bbl)
2,700
2,800 OECD Inventory
10 year average
2,600
,
2456
2,500
2,300
2,400
2,200
Jan-
06A
pr-0
6Ju
l-06
Oct
-06
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
Jan-
16A
pr-1
6Ju
l-16
Oct
-16
Jan-
17A
pr-1
7Ju
l-17
Oct
-17
3Source: Outlook by the Author based on data from IEA “Oil Market Report”
IEEJ:November 2017 © IEEJ 2017
©2017 IEEJ, All rights reserved
Call on OPEC vs. OPEC ProductionKen Koyama, IEEJ, November 8th, 2017
Call on OPEC vs. OPEC Production3,400
(10,000B/D) (Days)
653,200
3,300OECD Inventory daysCall on OPECOPEC Production
3,000
3,100
55
2,800
2,900
2,600
2,700
452,500
4Source: IEA “Oil Market Report”
IEEJ:November 2017 © IEEJ 2017
©2017 IEEJ, All rights reserved
US Oil Production and Rig Count
Ken Koyama, IEEJ, November 8th, 2017
US Oil Production and Rig Count
170010000(1,000B/D) (Counts)
15009000
9500 Crude oil production
Oil rig count
1100
1300
8000
8500
900
6500
7000
7500
500
700
5500
6000
6500
3005000
5500
2010/1/1 2011/1/1 2012/1/1 2013/1/1 2014/1/1 2015/1/1 2016/1/1 2017/1/1
5Source: Data from EIA and Baker Hughes
IEEJ:November 2017 © IEEJ 2017
©2017 IEEJ, All rights reserved
Outlook for Oil Supply-DemandKen Koyama, IEEJ, November 8th, 2017
Outlook for Oil Supply Demand3.50101
Oil Demand(Over supply)
(Million B/D) (Million B/D)
2.50
3.00
99
100
1.30 1.42 1.50
2.00
97
98
Oil supply
0.48 0.30
0.07 (0 05)
0.60 0.50
1.00
95
96
(0.05)
(0.51)
(0.12)
(0.20) (0.23) -0.50
0.00
93
94
Balance (S ppl min s deamnd)(0.81)
-1.50
-1.00
91
92
2016-1Q 2Q 3Q 4Q 2017-1Q 2Q 3Q 4Q 2018-1Q 2Q 3Q 4Q
Balance (Supply minus deamnd)
(Excess demand)
6Source: Outlook by the Author based on data from IEA “Oil Market Report”
IEEJ:November 2017 © IEEJ 2017
©2017 IEEJ, All rights reserved
O l k f N T Gl b l Oil M k
Ken Koyama, IEEJ, November 8th, 2017
Outlook for Near-Term Global Oil Market
Current price level likely to remain in the near term.
Market is heading for “Re-balancing”, but…g g ,
US LTO production is 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?
C t i l l i t t i bl f id t M k t Current price level is not sustainable for mid-term. Market may head for 70 in 2020s
Another uncertainty has emerged for longer term Another uncertainty has emerged for longer term…
7
IEEJ:November 2017 © IEEJ 2017
©2017 IEEJ, All rights reserved
Instability in the Middle EastKen Koyama, IEEJ, November 8th, 2017
Te o ist Attacks
Iraqi situations after the warUncertainty over
Tensions on Iran Nuclear development
Terrorist AttacksIn Paris, Brussels,
etc.
Middle East Peace issues
Future of
Immigrants toEurope
Stability in Kurdish region
Gaza crisis Impacts of Islamic State
Future of nuclear deal
US attack on Syria P t tiImpacts of
“Arab Spring”Tense Saudi-Iran
Syria Power concentration to MBS
Tensions surrounding Qatar
Syria, Yemen, Egypt…
Tense Saudi IranRelations
Impact of US policy by new administration
su ou d g Qata
Terrorism, threats to energy production
Growing Anti US sentiments in Arab
Domestic challenges for existing rulers
new administration
Source: Prepared by IEEJ
to energy production and exports
sentiments in Arab and Islam society
for existing rulers and regimes
8
IEEJ:November 2017 © IEEJ 2017
©2017 IEEJ, All rights reserved
Oil demand peaks by rapid penetration of ZEVs<Peak Oil-Demand Analysis>Ken Koyama, IEEJ, November 8th, 2017
・ Oil consumption ・ Oil for Road [Peak Oil Demand Case]
Reference40
105
12212033
30
8690
Advanced Technologies
9798
89
100
Mb/
d
15
21
18
22
20
Mb/
d
Peak Oil Demand
89
8016
18Non-OECD
1110
602010 2020 2030 2040 2050
OECD50
2000 2010 2020 2030 2040 2050
Oil consumption by cars in Non-OECD, which continues to increase rapidly in the Reference Scenario, also declines from around 2030. It is as
In the Peak Oil Demand Case, oil consumption hits a peak of 98 Mb/d around 2030 then declines. The reduction from the
Note: Dotted lines are the Reference Scenario
Scenario, also declines from around 2030. It is as much as one third of the Reference Scenario in 2050.
9
Reference Scenario is 7 Mb/d and 33 Mb/d in 2030 and in 2050, respectively.
Source: “IEEJ Outlook 2018” (IEEJ, October 2017)
IEEJ:November 2017 © IEEJ 2017
©2017 IEEJ, All rights reserved
LNG Market Outlook up to 2018Ken Koyama, IEEJ, November 8th, 2017
LNG supplies continues to be abundant up to 2018 and beyond due mainly to substantial increase in supplies from new projects
p
million tonnes
263 6 263 6 275.6 280.4 290.2
297.4300.0
350.0million tonnes
263.6 263.6
200 0
250.0
Africa
A i
150.0
200.0 Americas
US
FSU
Europe
50.0
100.0
Europe
Middle East
Asia-Oceania
0.0
50.0
Demand Supply Demand Supply Demand Supply
10Source: Yoshikazu Kobayashi, “Outlook for the World Gas Market” (July 25, 2017)
2016 2017 2018
IEEJ:November 2017 © IEEJ 2017
©2017 IEEJ, All rights reserved
LNG demand in AsiaKen Koyama, IEEJ, November 8th, 2017
The share of Asia will remain high despite emerging countries start to import LNG. The market becomes more price-elastic. Emerging countries prefer more flexibilities in supply.
The share of Asia in world LNG demand LNG demand of JKT and other Asia
73%67% 66%
68%70%
80%
500
600 mtpa
350
400 mtpa
50%
60%
400
500
Int'l bunker
Africa
L America 250
300
30%
40%
200
300 N America
Europe
Middle East
Asia
150
200 Non JKT
JKT
0%
10%
20%
0
100
Asia
Asia %
0
50
100
11
0%02016 2020 2025 2030
02016 2020 2025 2030
Source: Yoshikazu Kobayashi, “The Role of Natural Gas in Japan and Asia” (September 11, 2017)
IEEJ:November 2017 © IEEJ 2017
©2017 IEEJ, All rights reserved
Factors to affect Gas/LNG Demand in Asia
Ken Koyama, IEEJ, November 8th, 2017
/
Economic growthg Need to protect environment Lower price Lower price Competition against coal
Future of nuclear power Future of nuclear power Competition against renewable energy Competition with LPG Impact of power/gas market reform
12
p p /g Pipeline vs. LNG
IEEJ:November 2017 © IEEJ 2017
©2017 IEEJ, All rights reserved
S l l i lik l i i h di ( 202 )
World LNG Supply-Demand OutlookKen Koyama, IEEJ, November 8th, 2017
Supply surplus is likely to continue in the medium term (~2024). Realization of planned capacity in a timely manner is needed to keep the
demand and supply balanced beyond the mid-2020s. Qatari expansion of its capacity may greatly contribute to maintain the balance.Qata e pa s o o ts capac ty ay g eat y co t bute to a ta t e ba a ce
900 mtpa
Planned
700
800 FID, under construction
Existing
Demand
500
600
300
400
100
200
13
0 2015 2017 2019 2021 2023 2025 2027 2029
Source: Yoshikazu Kobayashi, “The Role of Natural Gas in Japan and Asia” (September 11, 2017)
IEEJ:November 2017 © IEEJ 2017
©2017 IEEJ, All rights reserved
World gas prices by regionPrice gaps by regions significantly narrowed
Ken Koyama, IEEJ, November 8th, 2017
g p y g g y
18
20 Units: USD / million Btu
16
Henry Hub
NBP
12
14
Japan LNG average
8
10 Platts JKMTM
4
6
0
2
14Source: US EIA and IEA
0 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 1 4 7 10 1 4 7 10 1 4 7 10 1
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
IEEJ:November 2017 © IEEJ 2017
©2017 IEEJ, All rights reserved
Issues for LNG Pricing in Asia
Ken Koyama, IEEJ, November 8th, 2017
Issues for LNG Pricing in Asia
Given the dominance of the existing contracts, JCC pricing likely to Given the dominance of the existing contracts, JCC pricing likely to remain 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
f f S Gf f S G 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 to growterm trading continue to grow Initiatives to create hubs and new price discovery in AsiaInitiatives to create hubs and new price discovery in Asia Initiatives to create hubs and new price discovery in AsiaInitiatives to create hubs and new price discovery in Asia Power and gas market reforms in Japan and AsiaPower and gas market reforms in Japan and Asia
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 possible alternatives to JCC and the share Buyers continue to search for possible alternatives to JCC and the share
of JCC pricing will be reducedof JCC pricing will be reducedSo far there is no clear answer as to what is the best alternativeSo far there is no clear answer as to what is the best alternative
15
So far there is no clear answer as to what is the best alternativeSo far there is no clear answer as to what is the best alternative What will happen if divergence emerges between LT contract and spot What will happen if divergence emerges between LT contract and spot
price?price?
IEEJ:November 2017 © IEEJ 2017
©2017 IEEJ, All rights reserved
JFTC’s study on LNG trading
Ken Koyama, IEEJ, November 8th, 2017
y g
Japan Fair Trade Commission (JFTC) published a study of international LNG trading practice.
Significance of the study The study clearly mentions that the destination restriction in the existing LNG long-term contractThe study clearly mentions that the destination restriction in the existing LNG long term contract
violates the Japanese Anti-Monopoly Act. It urges Japanese companies not to accept the destination clause in the new and renewed contract. It recommends the companies to renegotiate the destination restriction also in the existing
contractscontracts. It first comments that Take-or-pay provision also can violates the Anti-Monopoly Act.
ChallengesEff ti t f i fi i th bi t h ll Effectiveness to foreign firms is the biggest challenge.
Application to DES contracts
It can set a standard of long-term contract if FTCs in other countries may f ll th JFTC t d
16
follow the JFTC study.
Source: Yoshikazu Kobayashi, “The Role of Natural Gas in Japan and Asia” (September 11, 2017)
IEEJ:November 2017 © IEEJ 2017
Contact: report@tky.ieej.or.jp
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