Natural gas has a crucial role to play in the current transition to a low carbon economy, raising investment challenges which have become even more prominent in the current period of economic crisis and low prices.

CEDIGAZ, the International Information Center on Natural Gas, has just released its « Medium and Long Term Natural Gas and LNG Outlooks 2020 ». Cedigaz Scenario assumes the effective realisation of official energy plans and climate policy targets. It is built upon the implementation of strong energy efficiency programmes and the expansion of low carbon technologies. It highlights that natural gas will play a growing role in the world energy mix to meet both the growing energy demand and climate policy targets. The future expansion of natural gas in the energy mix is driven by the competitiveness and abundance of resources in gas-rich countries (North America, Russia, Middle East… ), which will expand LNG export capacities required to meet the growing gas demand, especially in emerging Asian markets. Despite a post-pandemic recovery assumed post-2021, the Covid-19 pandemic has a meaningful impact on the economy, investments, energy prices and gas demand in the short and medium term. Therefore, the future expansion of gas in the next two decades is conditioned on the timely materialization of investments, especially in the upstream and LNG business, which represents a key challenge in a context of low oil and gas prices.

U.S. Shale Oil & Gas Basins

This memo aims to resume tracking of drilling activity at U.S. shale oil basins to assess how production has been impacted by the unprecedented drop in E&P activity due to Covid-19 and the fall of the barrel price in March. Three scenarios based on drilling activity and well productivity are analyzed for the purpose of estimating 2021 production at the 7 main producing basins, including the Permian Basin. The production figures from our scenarios, which includes only production from shale are compared to EIA’s scenarios which gives global production figures without distinguishing between shale production and conventional production.
This memo does not account for any new effects of Covid-19, e.g. the occurrence of a second wave during the winter of 2020-21 that would further reduce demand for oil and gas, cause prices to fall again and impact drilling activity in the United States.

The LNG market in June 2020 : Qatar at full speed, US in slow motion.

Global LNG import[1] decline accelerated in June. Preliminary data[2] point to an 8% drop (-2.3 Mt) compared to May and a 4.2% decline (-1.2 Mt) year-on-year. Global net imports stood at an estimated 26.3 Mt, which is equivalent to only 72% of global liquefaction capacity, a level significantly below the 5 year capacity utilization range in June for the 2015-2019 period (81-89%). This signals a growing oversupply in the first semester as capacity utilization had remained within the 5 year range until May and shows that the LNG market flexibility needed to absorb the surplus is being stretched to its limits.

 

The strong decline in June is due to Europe where imports nosedived in several major importing countries : France (- 1.4 Mt), Netherlands (-0.7 Mt), UK (-0.6 Mt), Belgium (-0.6 Mt) and Turkey (-0.5 Mt). Overall European imports (including Turkey) were down 40% in June compared to May (-3.5 Mt). All other regions registered modest growths. In particular imports grew by 0.8 Mt in Asia essentially thanks to Japan (+0.6 Mt) and India (+0.4 Mt) while they declined in South Korea (-0.3 Mt) and remained almost stable in China. The year-on-year picture is less dramatic with imports down by 1.5 Mt (-23%) in Europe, essentially due to France and the Netherlands and up 0.5 Mt in Asia essentially because of China (+0.7 Mt) while South Korean imports declined by 0.5 Mt.