Market outlook for natural gas
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Transcript of Market outlook for natural gas
Market outlook for natural gasIan LawrieManager Gas Market Analysis, London London March 17th 2011
Three important factors drove an oversuppliedgas market in 2009
• Demand reductions followingthe economic downturn
• Increase of US domesticproduction from shale gas resources
• Expected increase in LNG production capacity
European Demand (Bcm)
515
485
2008 2009
LNG production capacity (Bcm)
241
259
2008 2009
US shale gas production (Bcm)
63
88
2008 2009
* Source: Wood Mackenzie
Demand has generally recovered through 2010
554
527
552
2008 2009 2010
255 267322
2008 2009 2010
All key markets are showing signs of recovery (bcm)
European demand *
Asian demand **
US demand
Source: Wood Mackenzie EMT* Europe includes Turkey** Asia: Japan, S Korea, Taiwan, China and India
− Industrial demand starting to recover from the economic downturn
− Increased use of gas for power generation in Europe and North America
−Emerging markets step up LNG purchases608
606
615
2008 2009 2010
Price levels have recovered during 2010
• Demand growth in all markets
• Supply issues
• Cold weather
2
3
4
5
6
7
8
9
10
11
12
Jan-
09
Apr-
09
Jul-
09
Oct
-09
Jan-
10
Apr-
10
Jul-
10
Oct
-10
Jan-
11
Apr-
11
Jul-
11
Oct
-11
Jan-
12
Apr-
12
Jul-
12
Oct
-12
$/M
MBt
u
HH Cash $/MMBtu NBP DA ($/MMBtu) German border price
Market expectation
Political turmoil lifts oil prices
• Events in Tunisia, Egypt and Libya have pushed oil prices into a new, higher range
• Fears of contagion across North Africa/Middle East on the rise
• Higher oil prices also affect European gas
Dated Brent Oct 10 - Mar 11
80
90
100
110
120
Oct-10 Nov-10 Dec-10 Jan-11 Feb-11 Mar-11
$/bb
l Ben Ali steps down
Protests in Tunisia
Demand pull from China, but also OECD growthLower stocksCold weather
Assumptions of tighter market balance out in time and increased marginal production cost Geopolitics:
Mubarak steps downLibyan unrest and stalemateContagion/fear of contagion in MENA
European prices gravitate to coal substitutionCoal and emission prices
‘Based on 35% coal efficiency, 49% gas efficiency
60
70
80
90
100
110
120
130
140
Dec 09 Feb 10 Apr 10 Jun 10 Aug 10 Oct 10 Dec 10 Feb 11
$/t C
oal
10
20
30
40
50
€/t E
U ET
S
Coal ARA 1st month CO2 emission spot
Implied UK coal switching price
• European demand strong into 2011
• Increasing oil prices lift long term contract prices summer 2011 onwards
• Gas to power switching in power sector setting marginal pricing
– Boosted by strong coal prices
40
45
50
55
60
65
70
75
80
85
90
Spot Q2 2011 Q3 2011 Q4 2011 Q1 2012 Q2 2012
p/th
erm
Implied switching price NBP TTF Long term German border price
Italian storage levels mask year on year deficit
• Overall European storage levels are 42% full or 31 Bcm
– 2 Bcm behind of 2010 levels (3 Bcm behind excluding Italy)
• Inventory levels in Italy stand at 56% full and 1 Bcm ahead of 2010 levels
– Stock piling ahead of postponed Transitgas pipeline outage buffers the market from lost Libyan
European Storage Inventory vs. 3-year average
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
Jan Mar Jun Sep Dec
Mcm
in s
tore
3-year average 2011Source: GIE
Western Europe gas storage
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
18,000
20,000
Baumgarten Germany PSV PEG Iberian NBP TTF(Eurohub)
ZEE
Mcm
in s
tore
Stock level Remaining capacity 2010 levelSource: GIE
US production machine keeps on running
Source: EIA & Baker Hughes
• US demand has been boosted by lower prices
• Production continues to increase
• Gas to power demand forms “collar” around prices
Year-on-year US Domestic production
53,000
54,000
55,000
56,000
57,000
58,000
59,000
60,000
61,000
62,000
Jan
Feb
Mar
Apr
May Jun Jul
Aug
Sep
Oct
Nov Dec
MM
cf/d
ay
2009 2010 2011Source: EIA
US Domestic production vs. Rig count
44,000
46,000
48,000
50,000
52,000
54,000
56,000
58,000
60,000
62,000
Jan-
08
Mar
-08
May
-08
Jul-
08
Sep-
08
Nov
-08
Jan-
09
Mar
-09
May
-09
Jul-
09
Sep-
09
Nov
-09
Jan-
10
Mar
-10
May
-10
Jul-
10
Sep-
10
Nov
-10
Jan-
11
Mar
-11
MM
cf/d
ay
0
300
600
900
1200
1500
1800
Gas
rig
cou
nt
Lower 48 States Dry Gas Production (MMcf/d) Operative Gas RigsSource: EIA & Baker Hughes
US storage withdrawals drop as warmer weather arrives
• US storage levels are at 45% full as strong withdrawals take inventories to:
– 3.7 Bcm below 5 year average
– 5.5 Bcm below 2010 levels
US storage inventory vs. 5 year average
-
20
40
60
80
100
120
Jan Apr Jul Oct
Bcm
in s
tore
5yr average 2011Source: EIA
US Residential & Commercial Demand vs. 5yr average
0
5
10
15
20
25
30
35
40
45
50
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb
Bcf/
day
US Residential & Commercial demand 5-year average
• Continued cold weather in the North East has pushed up demand and increase withdrawals
• Capacity bottlenecks into New York City caused prompt prices to spike
Gas demand is increasing and result in tighter coupling between Europe and Asia
Indigenous Production
US (bcm) Europe (bcm) Asia (bcm)
Import Upside potential
Source: Statoil internal
0
200
400
600
800
1000
2010 2020 20300
200
400
600
800
1000
2010 2020 2030
0
200
400
600
800
1000
2010 2020 2030
Asia needs more LNG in spite of extensive growth in domestic production
• LNG supply from many sources
• LNG depends on Australia delivering
• Further growth depends on LNG versus domestic supply in China and India
Asian supply by source
(bcm)
Source: Wood Mackenzie GGM 2H2010* Domestic includes intra-Asian pipelines
0
200
400
600
800
1000
1200
2008
2009
2010
2012
2015
2020
2030
Domestic* LNG Pipel ine
Watch for step ups in domestic production in China
−No new LNG projects sanctioned with start up date after 2016
−New LNG production capacity requires significant investments
Available LNG volumes are limited
Growth in new LNG capacity is levelling out and majority of volumes are committed (bcm)
Source: WoodMackenzie and Statoil
252280
327 340 343 348 361 374
2009 2010 2011 2012 2013 2014 2015 2016
Committed LNGLNG production
Gas is competitive in power generation
Gas is very competitive, and does not require subsidies
Gas and gas technology is available when
old capacity is retired
Soruce: CERA and PlattsSoruce: IEA 2009
Reduction in CO2 emissions of up to 70% compared with
old coal fired plants
Soruce: Deutsche Bank
Europe
Older than 40 yrs
31 – 40 yrs
21 – 30 yrs
11 – 20 yrs
0 – 10 yrs
New capacity
Gas Coal Nuclear Wind
Investment Operation Fuel
Emissionsold coal
plant
Reductionnew coal
plant
Reduction with new gas
plant
Emissionsnew gas
plant
$10/MMbtu$11/MMbtu
$15/MMbtu
The shale gas ”revolution” has increased the global gas resource estimates
Source: IEA World Energy Outlook 2009
Global gas resources 2008 (TCM)
Unconventional gasConventional gas
210
OECD
200
Rest of the world
200
Russia / FSU
170
Middle East
15
What to watch in 2011
USAsia
Europe
China growth
US shale production and power
demand
Russian exports
European policy trends (EU 2050)
Asia and Europe’s ability to absorb new LNG
Conclusions
− The gas market is improving
− The gas market has big growth potential
− Natural gas is part of the solution to the climate challenge
Forward looking statements
This presentation contains certain forward-looking statements that involve risks and uncertainties. In some cases, we use words such as "ambition", "believe", "continue", "could", "estimate", "expect", "intend", "likely", "may", "objective", "outlook", "plan", "propose", "should", "will" and similar expressions to identify forward-looking statements.
All statements other than statements of historical fact, including, among others, statements such as those regarding: expected equity production; regularity, efficiency and productivity goals for future operations and projects; our financial position, results of operations and cash flows; expected dividend; our future market position; business strategy; expected changes in ownership interests and structures; expected project development expenditures; plans for future development (including redevelopment) and operation of projects; reserve information; reserve recovery factors; future reserve replacement ratio; entitlement volumes; expected timing of resumption of certain exploration drilling in the US Gulf of Mexico; future ability to utilise and develop our expertise; future growth (including future production growth); our future ability to create value; oil and gas production forecasts; future composition and maturity of our exploration and project portfolios; exploration expenditure; expected exploration and development activities and plans; planned turnarounds and other maintenance; expected unit production cost; expected refining margins; expected gap between entitlement and equity volumes; expected impact of contractual arrangements on equity volumes; expected production and capacity of projects; projected impact of laws and regulations (including taxation laws); the impact of the uncertain world economy; expected capital expenditures; our expected ability to obtain short term and long term financing; our ability to manage our risk exposure; the projected levels of risk exposure with respect to financial counterparties; our ability to obtain financing at attractive funding cost levels; the expected impact of currency and interest rate fluctuations (including USD/NOK exchange rate fluctuations) on our financial position; oil, gas and alternative fuel price levels and volatility; oil, gas and alternative fuel supply and demand; the markets for oil, gas and alternative fuel; projected operating costs; the completion of acquisitions, disposals and other contractual arrangements; estimated values in use; estimated cash flows; estimated costs (including costs for plugging and abandonment of wells); estimated future operational leasing commitments; future number of vessels employed; estimated decline of mature fields; future market conditions; future utilisation of capacity contracts; our HSE objective; impact of PSA effects; and the obtaining of regulatory and contractual approvals, are forward-looking statements. You should not place undue reliance on these forward-looking statements. Our actual results could differ materially from those anticipated in the forward-looking statements for many reasons, including the risks described above in "Risk update".
These forward-looking statements reflect current views with respect to future events and are, by their nature, subject to significant risks and uncertainties because they relate to events and depend on circumstances that will occur in the future. There are a number of factors that could cause actual results and developments to differ materially from those expressed or implied by these forward-looking statements, including levels of industry product supply, demand and pricing; currency exchange rates; interest rates; trading activities; the political and economic policies of Norway and other oil-producing countries; general economic conditions; political stability and economic growth in relevant areas of the world; global political events and actions, including war, terrorism and sanctions; changes in laws and governmental regulations; the lack of necessary transportation infrastructure when a field is in a remote location; the timing of bringing new fields on stream; material differences from reserves estimates; an inability to find and develop reserves; adverse changes in tax regimes; the development and use of new technology; geological or technical difficulties; operational problems; security breaches; the actions of competitors; our ability to successfully exploit growth opportunities; the actions of field partners; industrial actions by workers; failing to attract and retain senior management and skilled personnel; failing to meet our ethical and social standards; operational catastrophes; security breaches; natural disasters and adverse weather conditions and other changes to business conditions; and other factors discussed elsewhere in this report. Additional information, including information on factors that may affect Statoil's business, is contained in Statoil's 2009 Annual Report on Form 20-F filed with the U.S. Securities and Exchange Commission, which can be found on Statoil's website at www.statoil.com.
Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot assure you that our future results, level of activity, performance or achievements will meet these expectations. Moreover, neither we nor any other person assumes responsibility for the accuracy and completeness of the forward-looking statements. Unless we are required by law to update these statements, we will not necessarily update any of these statements after the date of this review, either to make them conform to actual results or changes in our expectations.