Gas and power market analysis - August 2020 - BP
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Gas and power market analysis August 2020
Disclaimer
This presentation has been provided to you for informational purposes only. This presentation is not advice
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Confidential 2Market Summary
The NBP Month Ahead contract averaged $1.40/MMBtu in May, its lowest level in over
15 years (NBP: €4.50/MWh, 12p/th).
Robust imports and slow demand recovery has resulted in record seasonal storage levels,
supressing prices:
Demand recovery: Although COVID-19 related control measures are easing globally,
various restrictions remain in place, limiting demand recovery:
− LNG imports in several countries begin recovery, but have remained low as
pandemic related restrictions reduce energy demand. This has compounded an
already well supplied situation and US LNG exports have dropped.
− Across Europe power demand and industrial demand for gas have started to
recover as control measures aimed at limiting the spread of the coronavirus are
lifted.
• European pipeline flows soften: Russia pipeline flows to Europe were down 19% in
June relative to the same time last year, driving a decrease in European pipeline flows.
• Record seasonal storage levels: European gas storage levels have been above historic
levels since mid-2019 and have remained high throughout 1H20.
Source: BP Analysis 3Gas prices reach historic lows in 2Q20
• NBP, TTF and JKM reached historic lows in May-20, with the monthly average price ~65% lower than Dec-19.
• TTF averaged $1.8/MMBtu in 2Q20, down 60% YoY.
• The drop in prices comes against a backdrop of strong gas supplies, record high storage levels, and weak demand
due to the spread of COVID-19.
Global gas benchmarks European gas benchmarks
$/mmbtu €/MWh
30
14
12
10 20
8
6
10
4
2
0
0
2015 2016 2017 2018 2019 2020
2015 2017 2019 2021 2023 2025
PEG PSV PVB NBP TTF
European coal switching Oil parity
PEG = French gas
HH JKM PSV = Italian gas
PVB = Spanish gas
NBP TTF NBP = British gas
Futures as of 21/07/2020 TTF = Dutch gas Source: NYMEX, ICE, Heren, S&P Global Platts ® 4As gas prices stay low, US producers shut-in LNG
• Reports indicate various LNG shipments from US terminals have been cancelled during June and July 2020 as
low gas prices make shipping the LNG uneconomic.
• LNG exports from the US in June were less than 50% of nameplate capacity.
US LNG exports & export capacity LNG costs vs global gas benchmarks
Mt/month $/MMBtu
7
12
6
10
5
8
4
6
3
4
2
1 2
0 0
Jan-18 Apr-18 Jul-18 Oct-18 Jan-19 Apr-19 Jul-19 Oct-19 Jan-20 Apr-20 Jan-18 Apr-18 Jul-18 Oct-18 Jan-19 Apr-19 Jul-19 Oct-19 Jan-20 Apr-20
LNG exports Export capacity Other costs - lower bound JKM NBP TTF
LNG cost calculated as:
Henry Hub front month price + costs (fuel costs, regasification, shipping, entry charges)
Note: This does not include a tolling fee cost.
Confidential Source: BP Analysis, Wood Mackensie, NYMEX, ICE, Heren, S&P Global Platts ® 5Global LNG deliveries begin recovery
• Global LNG deliveries (excluding Europe) fell 9% YoY in Apr-20, following weak demand due to the spread of COVID-
19 and subsequent containment measures.
• Demand has started to recover towards the end of 2Q20 as countries ease COVID-19 containment measures.
• Although global deliveries (excluding Europe) have recovered over 2Q20, Jun-20 deliveries are still 6% down YoY.
Global LNG deliveries excluding Europe
bcfd
45
40
35
30
25
20
15
10
5
0
Jan Feb Mar Apr May Jun
2019 2020
Confidential Source: BP Analysis 6LNG send-outs fall as low prices curtail global supply
• LNG send-outs have fallen as European storage levels have hit historic highs, reducing European LNG demand.
Combined with reduced global supply, this has led to fewer exports to Europe.
• Despite falling to ~220mcm/d in Jun-20, monthly European LNG send-outs remained high.
Monthly European LNG send-outs
mcm/d
400
350
300
250
200
150
100
50
0
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
UK France Italy Spain Netherlands Belgium Lithuania Poland Portugal
N.B. data does not incorporate all regasification facilities in Europe, but rather can be used as a proxy for LNG send-outs
Source: Official TSO Statistics 7European gas & power demand recovers
• As COVID-19 control measures ease across Europe, gas and power demand has started to recover.
• As the pandemic spread, energy demand fell as industry and working practices changed.
• Italy and Spain introduced control measures in March, and relaxed them in June, as represented by dashed lines on
the graph.
Spain power demand Italy industrial gas demand
mcm/d
GW/d
800 50
700
40
600
500
30
400
300
20
200
100 10
0
0
1-Mar 15-Mar29-Mar 12-Apr 26-Apr10-May24-May 7-Jun 21-Jun 5-Jul
Graph dates refer to 2020 and 2019 data has been aligned to match weeks Source: SNAM, ENTSO-E 8EU-27 renewable generation exceeds fossil fuels, as
global capacity continues to grow
• During 1H20, renewable electricity generation exceeded fossil fuel generation in the EU-27 for the first time, with
renewables growing 11% and fossil fuel generation falling 18% YoY.
• According to the bp Statistical Review of World Energy 2020, the share of global electricity generation from wind,
solar and other renewable sources reached 10% in 2019, up from 9% in 2018.
• Solar and wind electricity generation grew 24% and 13% respectively in 2019, to a combined total of 2150TWh.
Global Solar power generation Global Wind power generation Electricity generation by fuel
TWh TWh Other, 1% Oil, 3%
800
1600
Renewables*,
10%
1400 Nuclear
energy, 10%
600 1200
Hydro electric,
16%
1000
400 800 Natural Gas,
23%
600
200 400
Coal, 36%
200
0 0
2005 2007 2009 2011 2013 2015 2017 2019 2005 2007 2009 2011 2013 2015 2017 2019 2019
North America South & Central America Europe
Asia Pacific Middle East Africa
CIS Total N.B. * Renewables includes electricity generated from wind, solar, geothermal, biomass and other sources of renewable energy.
Confidential 9
Source: bp Statistical Review of World Energy 2020, Ember, ENTSO-ECarbon prices reach 14-year highs
• EUA prices have risen during 2Q20 and reached €30/tonne of CO₂ for the first time in 14 years on 13th July 2020.
• EUA monthly average pricing was €20 in Apr-20 and €23 in Jun-20, a rise of €3 over 2Q20. As of 22nd July, the
monthly average price for Jul-20 is €28.
• The UK will leave the EU Emissions Trading Scheme (ETS) on 1st January 2021 as the Brexit transition period
ends. A UK ETS will be formed to replace the EU system.
EUA carbon futures
€/tonne of CO₂
30
25
20
15
10
5
0
2017 2018 2019 2020
Source: ICE 10European pipeline flows soften further
• Total European flows for 2Q20 averaged 170 mcm/d lower than in 2Q19, driven by decreased Russian flows.
• On 01-Jan-20, European pipeline flows from Russia fell, and have not recovered to 2019 highs.
• Average Russian daily pipeline imports to Europe in Jun-20 were 390 mcm/d, 90 mcm/d lower than Jun-19.
Europe pipeline imports
Total Russia
mcm/d mcm/d
1000
500
900
800 400
700
300
600
500 200
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Norway Algeria
mcm/d mcm/d
150
350
100
250
50
150 0
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
2016 2017 2018 2019 2020
Total flows are from Russia, Norway, Algeria & Libya; Russia flows are to Central and Western Europe only Source: Official TSO Statistics 11European gas inventories remain significantly above
seasonal norms
• Robust pipeline imports and record high LNG deliveries in 2019, combined with a warm 2019-2020 winter saw
European storages end 1Q20 at historically high levels for the time of year.
• Storage levels have remained high in 2Q20. European gas inventories were 9 bcm, or ~10% higher at the beginning of
Jul-20 compared to the same time last year.
European GIE storage
bcm
125
100
75
50
25
0
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
11-15 Range 2016 2017 2018 2019 2020
N.B. data from GIE does not incorporate all storage facilities in each country, but rather can be used as a proxy for total storage
Source: Gas Infrastructure Europe 12Seasonally high European storage levels
France, Italy and Spain in particular have sustained high inventories.
Germany France
bcm bcm
25 15
20
10
15
10 5
5
0 0
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Italy UK
bcm bcm
20 6
15 4
10 2
5 0
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Netherlands Spain
bcm bcm
15
3
10
2
5 1
0 0
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
11-15 Range 2016 2017 2018 2019 2020
N.B. data from GIE does not incorporate all storage facilities in each country, but rather can be used as a proxy for total storage
Confidential Source: Gas Infrastructure Europe 13You can also read
