- The global oil and gas markets are going through an extraordinary period.
- Crude oil and natural gas prices have fallen significantly since the beginning of 2020 to reach historically low levels at the end of March.
- Before the spread of the 2019 novel coronavirus disease (COVID-19), spot gas prices were already at seasonal lows due to LNG oversupply, an unseasonably mild winter in the northern hemisphere, economic turmoil (trade war between the United States and China) and renewed confidence in future pipeline gas supply in Europe.
- China’s gas demand slowed down at the start of the year as the coronavirus outbreak disrupted industrial output. This downturn has gradually compounded the LNG glut on the global spot market and has accentuated the decline in spot gas prices.
- From mid-March, the decline in spot gas prices has been further accelerated by the impacts of the lockdowns which have ramped up around the world.
- The impact of the recent slump in oil prices on oil-indexed LNG prices will not be seen until late in the April-June quarter because of the time lag between crude oil and LNG prices under long term contracts.
- The COVID-19 has already had a devastating impact on global gas demand, which could continue for some time as the pandemic spreads across continents.
- A number of LNG projects have already faced headwinds amid the coronavirus outbreak and current low oil prices environment. However, as of today, these projects’ delays do not alter Cedigaz’ view for a well-supplied LNG market by 2025/2026.
The LNG market grew strongly in 2019. Global Imports (net of re-exports and domestic shipment, Fig_1&2) were up by 12.2% to reach 350.5 Mt (+38 Mt Y-o-Y) driven by the arrival of abundant LNG supply. In a context of weak growth in Asia (+5 Mt Y-O-Y compared to +27 Mt Y-o-Y in 2018) , which had been the driving force in previous years, Europe absorbed the bulk of the new volumes (+37 Mt), acting as a market of last resort. In all other regions, combined net imports’ decline was -4 Mt (Includes -2.3 Mt from Egypt in North Africa as it ceased LNG imports). As the growth in LNG supply outpaced demand, prices plummeted, reinforcing the competitiveness of gas in Europe.
Figure_1: Monthly Evolution of LNG Trade Y-O-Y (Mt)
Executive Summary of the CEDIGAZ report on the Iranian Gas Chain under US sanctions by Dr Sara Vakhshouri founder and president of SVB Energy International and specialist of the Iranian energy sector
Iran has one of the largest proven natural gas reserves in the world, hosts about 17% of the world’s proven natural gas reserves. Iran is also the world’s third–largest dry natural gas producer after the United States and Russia. About 80% of Iran’s gas reserves are from non-associated gas fields.
Based on Iran’s 6th Five Year Economic Plan (2016-2021), Iran’s rich gas production should reach 474.5 bcm a year or 1300 mcm a day by March 2021. This is almost twice its production of 250.7 bcm in 2016. Despite the upward natural gas output trend, due to sanctions, Iran will not hit its planned production target.
In March 2019, Iran’s processed about 889 mcm/d of rich gas that was produced from independent gas and form oil fields. Rich gas in Iran is processed by NGL factories, gas refineries and dehydration units. The largest share of refined gas production capacity belongs to gas refineries in South Pars.
Despite the fact that Iran is the world’s third largest producer of natural gas, its exports only constitute less than 1% of global gas trade. This is primarily due to its large domestic demand and then because of sanctions on its exports, and lack of investment and access to required technologies.
Iran’s condensate and gas liquid output has soared over the past decade. Most gas liquids are produced in the previously described NGL plants. Nevertheless, the actual production of these units has been less than 50% of their nominal capacity. This was significantly low during the nuclear sanctions and newest round of US sanctions. As a result, Iran has had to offset its oil production and adjust its ability to export. Lower crude oil production had additionally limited overall NGL production volumes, which is the byproduct of crude oil production in Iran.
Tighter US sanctions on Iran energy industry have had a significant and undeniable impact upon Iran’s gas development projects. If US sanctions against Iran continue in the long term, and Iran does not succeed in accessing international capital and technology, it will not increase its natural gas production. In, fact its production levels may start to decrease due to natural decline in South Pars production.
Unlike President Obama’s nuclear sanctions, the current sanctions include condensate export alongside the crude oil export in order to put “maximum pressure” on Iran. As a result of limitations on its condensate export, Iran is struggling to maintain its gas production particularly from South Pars.
Dr Sara Vakhshouri for CEDIGAZ
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