Storm warning in the U.S. oil & gas sector

The new CEDIGAZ report, U.S. Natural Gas Update and Outlook*, analyzes the consequences of the oil price decline on the U.S. oil and gas sector as well as the implications for production and hydrocarbon prices.

The oil price decline has left American producers in a situation like that of 2009 following the collapse of the Henry Hub gas prices. At the time, shale gas production was growing fast but demand was depressed due to the effects of the subprime mortgage crisis. Producers reacted by redirecting their investments towards liquid-rich deposits (containing oil or natural gas liquids) and were thus able to benefit from the oil price recovery. This strategic reorientation did not penalize gas production, which continued to grow, thanks to the gases associated with oil production which, in recent years, have been responsible for almost all growth in gas production. Today, more than 50% of the shale gas produced in the United States comes from liquid-rich deposits. Consequently, any decrease in liquids production occurring in reaction to falling oil prices is bound to have major repercussions on domestic gas production.

2014: A SECOND YEAR OF MODERATE GROWTH OF GLOBAL GAS ACTIVITY

2014 has been a very mixed year for natural gas, according to the First Estimates 2014 released by the International Association CEDIGAZ today. For the second consecutive year, gas demand slowed down in 2014, with subdued activity in the global gas industry at all stages of the chain.

Top1 consumming countriesGlobal natural gas consumption (including storage variations) was sluggish in 2014 and remained at a quite similar level than in 2013. This can be explained by increased competition between energies, especially coal, the economic slowdown (Europe, China, Russia…), geopolitical turmoil (Russia-Ukraine conflict) and the mild weather conditions which negatively impacted the expansion of gas demand (Europe, Asia). The global consumption trend showed regional disparities. Natural gas demand in North America and the Middle East continued to register strong expansion, but the growth in Asia slowed down, while consumption in the Commonwealth of Independent States (CIS) and Europe declined dramatically. Plummeting consumption in Europe (- 10%) in particular weighed significantly on the overall trend.

MEDIUM AND LONG TERM NATURAL GAS OUTLOOK

Natural gas will play a growing contribution in both OECD and emerging markets to meet the economic, environmental and security challenges of the world energy system. However, the future expansion of natural gas should not be taken for granted. Increased competition with coal in the power sector will need to be addressed while maintaining a gas price at a level compatible with the development of large capital-intensive projects. Only by resolving this conundrum can natural gas fully live up to expectations.

Gas demand growth is expected to remain strong to 2035, under the impulsion of the Middle East and China, where natural gas is making inroads in all consuming sectors

Natural gas demand➢ Energy efficiency gains will slow down both global primary energy and gas demand growths relative to the previous decade
➢ Global primary energy demand will grow by 1.3% per year and natural gas demand by 1.8% per year to 2035. Natural gas will increase its share in the global energy mix from 21% in 2013 to near 24%
in 2035
➢ Approximately 75% of the projected growth will come from emerging markets, driven by the economic growth and the displacement of oil in every main consuming sector
➢ Natural  gas  should  also  expand  in  the  power  sector  –  and,  to  a  lesser  extent,  in  the transportation sector – in OECD countries under the incentive of environmental & climate policies
➢ Asia-Oceania and the Middle-East will drive demand, accounting respectively for 42% and 24% of global growth. Asia-Oceania will become the largest consuming area post-2020, led by China.
➢ In China, the future growth of natural gas will be driven by the implementation of an energy and environmental policy aiming to shift away from coal to cleaner fuels in the long term