Download - Fereidun Fesharaki - FGE
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Oil and Gas Markets in Turmoil: Implications for AustraliaDr. Fereidun Fesharaki, Chairman
22nd Annual South East Asia Australia Offshore & Onshore Conference
September 14-15, 2016
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Oil Price Outlook: Three Critical Legs
Oil Price
Short Term: Supply/Demand
OPEC/SaudiStrategy
Long Term: Where will the market “hang
its hat?”
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Evolution of Market Surplus: 2016 vs. 2015
-0.6
-0.1
0.4
0.9
1.4
1.9
2.4
mm
b/d
Oil Market Surplus (2016 vs. 2015)
0.2- 0.3
0.2- 0.5
1.4
0.6
0.3 - 0.3
- 0.3
- 1.5
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Evolution of Market Surplus: 2017 vs. 2016
-0.6
-0.4
-0.2
0.0
0.2
0.4
0.6
0.8
1.0
1.2
mm
b/d
0.2
- 0.5
Oil Market Surplus (2017 vs. 2016)
0.2
0.6
0.2
0.2
- 1.6
- 0.4
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More Detail: Asian Demand Moderating, But Still Solid Growth
-400
-200
0
200
400
600
800
1,000
1,200
1,400
2012 2013 2014 2015 2016
kb/d
Asia Pacific Main Product Demand Growth
Rest of Asia South Korea Japan India China
Total Oil Demand* Growth, kb/d
2013 2014 2015 2016
China 477 400 595 278
India 54 246 290 333
Japan -174 -238 -181 -172
South Korea
3 2 117 101
Rest of Asia
260 105 276 284
Total 620 515 1,098 824
*Including other products and direct crude burn for Japan
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US Gasoline StrengthAll data 12-Month Moving Average
240
245
250
255
260
265
2012 2013 2014 2015 2016
Billion Driven Miles
22.0
22.5
23.0
23.5
24.0
24.5
25.0
25.5
26.0
2012 2013 2014 2015 2016
New Vehicle Fuel Economy (MPG)
2.0
2.2
2.4
2.6
2.8
3.0
3.2
3.4
3.6
3.8
2012 2013 2014 2015 2016
Gasoline Pump Price (US$/gallon)
8.5
8.6
8.7
8.8
8.9
9.0
9.1
9.2
9.3
2012 2013 2014 2015 2016
Gasoline Demand (mmb/d)
48%
50%
52%
54%
56%
58%
60%
2012 2013 2014 2015 2016
Truck Share in New Registrations
1.5%
2.0%
2.5%
3.0%
3.5%
4.0%
2012 2013 2014 2015 2016
Hybrid/Electric Share in New Registrations
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Oil Prices Will Fluctuate Around US$80/bbl (Real Price)
Note: 2005-2015 actual, forecasts in 2016$ thereafter.
30
40
50
60
70
80
90
100
110
120
US$
/bb
l
Brent Outlook Through 2030
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By 2020, Global LNG Supply Will Grow By 40% Due to Australia and US LNG Projects
• LNG supply additions from Australia and US Gulf Coast will increase current global LNG supply (250+ mmtpa) by more than 40%.
45
76
85
11
54
57
48
411
55
4
0
20
40
60
80
100
120
mm
tpa
eq
uiv
ale
nt
Incremental LNG Supply* to 2020
*Numbers reflect LNG output per quarter in mmtpa equivalent. Note: All the above shaded areas are FGE's project start-up dates assumptions and FGE's utilization rates assumptions.
Source: FGE estimates
PFLNG Dua
Yamal LNG
Corpus Christi LNG
Wheatstone LNG
Ichthys LNG
Cove Point LNG Freeport LNG Cameron LNG
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Massive Pre-FID LNG Supplies are Planned to Start-up Post-2020
Source: FGE LNG Online Data Service (ODS)
0
200
400
600
800
1,000
1,200
2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030
mm
t
World Liquefaction Capacity and LNG Demand
Operating Under Construction Planned Possible Speculative Global LNG Demand
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Although Europe Acts as the Near-Term LNG Sink, Asian LNG Demand Continues to Surpass Other Regions
Note: The above units are all in mmt of LNG.
182 221310
2016 2020 2030
Asia
4088 99
2016 2020 2030
Europe
17 19
35
2016 2020 2030
MENA
18 19 21
2016 2020 2030
Americas
LNG being pushed into Europe in 2020. Declining domestic production requires increasing LNG imports in the later years.
Pipeline gas imports from US to Mexico reduces LNG imports requirement, while the newer importers such as Uruguay and Colombia pushes up LNG demand.
Growing LNG demand as domestic production cannot keep up with requirement. Potential new demand creation during period of low prices.
Reform of subsidized domestic gas prices allows for further LNG imports.
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However, Despite Strong Incremental LNG Demand Growth, Asia as a Whole is Over-Contracted Until 2021
• Asia is over-contracted over 2018-2020, due to Japan, South Korea, and China.
• However, opportunities still exist in markets such as India and Taiwan over this period.
-20
0
20
40
60
80
100
120
140
160
mm
t
Asian Uncontracted LNG Demand
Japan South Korea Taiwan China IndiaIndonesia Malaysia Singapore Thailand Pakistan
Notes: Only considered existing LNG importers with their firm and likely contracts.
-6-4-202468
101214161820
mm
t
Aggregated Asian Uncontracted LNG Demand
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Asian Pull on LNG Disappear in 2018, Closing the Arbitrage Between Asian and Atlantic Markets
• In 2018, Asia does not need to pull any flexible ME supplies into the region as Asian supply and ME contracted supply meets the Asian LNG demand. As a result, Asian spot LNG prices are also expected to reach a low in 2018 as the arbitrage between Asian and Atlantic markets closes.
0
50
100
150
200
250
300
350
mm
t
Asian's Potential LNG Supply/Demand
Uncontracted/flexible supplies from Middle East US volumes contracted to Asian buyers
Contracted supplies from Russia (excluding Sakhalin II) and Africa Contracted supplies from Middle East into Asia
Asian LNG supply (including Australasian supply projects and Sakhalin II) Asian LNG demand
Note: Only SPAs and equity volumes are taken into consideration for contracted suppliesExcludes portfolio LNG sales to Asian buyers
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“4 Chains” Weigh Down the LNG Market: The View Today… Something’s Gotta Give!
Note: *Only for higher priced contracts (slope >13%).**Uncommitted volumes, equity offtake, and potential volumes re-entering market from ‘middleman’ buyers.
Unsold US LNG**
Uncommitted Qatari LNG
Buyers Performing Below Contract Levels*
Australian LNG Looking for a Home**
Volumes To Be Re-offered To Market (mmtpa)
2018 2020
US 16 32
Qatar 25 25
Below DQT* 8 9
Australia 20 20
TOTAL 69 86
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Weakening the Old Strongholds: The Real Problem Behind Perception of “Oversupply”
Supply Pool
ENN, Huadian, JOVO, Beijing Gas Group, etc.
GS Energy, SK E&S, KOMIPO, POSCO, etc.
Old Strongholds Who Typically Contract for LNG
Selected Independent Players
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0
2
4
6
8
10
12
14
16
18
US$
/mm
Btu
Asian LNG Price Forecasts
New Japan Oil-Linked LT Range Japan Spot Range New Japan Oil-Linked LT Japan LNG spot Japan Average Existing Contract
15
New Long-Term Contracts and Spot LNG Prices in Asia Remain Disconnected in the Near-Term Due to an Oversupplied Market
Both spot and LT prices rise to around US$10/mmBtu by 2026 as oil price rises, giving a reasonable return to the next tranche of LNG supply.
Post-2023, the market becomes tighter and the global LNG surplus clears, due to a lack of liquefaction FIDs, resulting in gradually closer spread between spot and contract prices.
Note: The above prices are in 2016$ real terms.
Japan average existing contract price remains significantly higher than the forecasted prices for new contracts. Asian spot prices remain disconnected from new oil-linked LT prices this decade as the market remains oversupplied due to the start-up of new liquefaction projects.
Asian spot prices are expected to start recovering slowly post-2018 as Asia becomes less over contracted.
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For Buyers and Sellers to Meet, LNG Price Levels and Contractual Flexibilities Need to be Adjusted
Pricing Adjustments
• Lower price expectations (lower slopes, removal of constants)
• More regular price reviews (~3-5 years)
• Move to other indexations such as JLC/JKM
Non-Pricing Adjustments
• Destination flexibility
• Volume flexibility (higher UQT/DQT)
• Seasonal delivery schedule
• Alliances between buyers/sellers
• Shorter long-term contracts
• Geographical swaps
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