- 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.
- Brent: between $60 and $80/b in 2019 (2018: $71/b)
The oil price oscillated between $50 and $86/b in 2018, averaging $71/b (+31% compared to 2017). The volatility observed in 2018 was due in large part to uncertainty about supply and economic growth, but also to the U.S. sanctions against Iran. Initially announced as being extremely severe, the embargo was softened at the last minute by the American president when he realized the likely consequences of a rise in the price of oil products.
For 2019, the average Brent price is expected to be in the $60 to 80/b range. These expectations account for different scenarios for factors such as economic growth, the Iran embargo, OPEC’s management of supply and U.S. production.
- NBP: €19-23/MWh in 2019 (€23.3/MWh; $8.1/MBtu in 2018)
Based on forward prices and expected oil prices, the average UK NBP price for 2019 could fall between €19 and 23/MWh ($6.5-7.8/MBtu) compared to €23,3/MWh ($8.1/MBtu) in 2018, representing a potential decrease of between 1 and 18%.
- Global trends
– Overall, the gas markets in Asia, Europe and the United States have been fairly volatile. In addition to the upcoming winter’s degree of severity, the oil price and economic context are also sources of uncertainty. Average prices for 2018 have been trending upwards, with the notable exception of those in the United States.
– The average price of gas imports to Japan continued to rise in the third quarter, mainly influenced by the uptrend in the oil price. During Q3, LNG spot prices approached long-term prices, indicating a tightening of supply due to increasing demand in Asia. According to market forecasts, this state of affairs should persist throughout the winter, followed by a perceptible price downturn starting in the spring of 2019.
– Since Q2 2018, the NBP price has been on an upward path. This trend is expected to continue throughout the winter then start a downswing in Q2 2019. Overall, it has been lower than the prices seen in Asia, a factor that does not favor LNG deliveries to the European market.
– It is thought that the Henry Hub price, up slightly at the end of Q3, will continue this uptrend over the next two quarters. The latter is not considered to be structural and, for 2019, the forward markets are anticipating a lower price due to the expected increase in production.