By Sebastine Obasi
GLOBAL liquefied natural gas, LNG, market is expected to increase by 32 billion cubic meters, bcm, in 2020, with large volumes mainly from the United States of America, S&P Global Platts, stated in its latest report. The report explained that LNG demand in quarter one, Q1, 2020 will be the most important factor for global natural gas prices during 2020. If winter natural gas demand underwhelms as it did last year, LNG cargoes will be forced into Europe, where prices will again need to fall to levels to maximize coal-to-gas switching.
It noted that European gas prices will decline over much of 2020, with Dutch natural gas trading hub TTF prices averaging about $4.15/MMBtu and bottoming out at $2.75/MMBtu in the third quarter. This will be challenging to US LNG break-evens, and force a temporary underutilization of US liquefaction capacity this summer.
The benchmark JKM LNG price is forecast by S&P Global Platts Analytics to increase seasonally in the first quarter due to higher freight rates and a more normal winter demand profile. Platts Analytics sees JKM LNG prices falling a further 20 percent, to average just below $4.50/MMBTU in 2020, as new LNG supply pushes prices toward coal parity in Europe. Platts JKM prices will likely hit fresh lows in the 2nd quarter of below $3.50/MMBTU. The report further stated that 2020 will be a landmark year for the US natural gas market because of a surge in LNG exports and related feedstock demand, which will push demand growth higher than supply growth. However, Henry Hub (HH) will not benefit from this structural shift. S&P Global Platts Analytics sees HH natural gas prices averaging $2.42/MMBTU in 2020, down from 2019.
On top of excess supply, which has pushed storage levels above the five-year average, the price of HH natural gas will be forced to stay in a range that will support a continual rise in the dispatch of US LNG cargoes. The US is expected to add another 28 billion cubic meters per year of LNG export capacity, through the completion of facilities.
The report also stated that in Europe, negotiations between Russia and Ukraine over a new gas transit agreement are keeping prompt TTF prices at higher levels, which do not necessarily reflect the underlying supply/demand fundamentals. A deal is looking more likely, given talks commencing between President Putin and President Zelensky.
Furthermore, Ukraine has agreed that Gazprom can repay its arbitration debt through the supply of gas, easing tensions around repayment.
The report also stated that electric vehicle (EV) sales and renewable installations are poised to bounce back from a sluggish 2019. Solar PV additions are expected to rise about 3 percent to 96 gigawatts in 2020. Western European markets are forecast to see combined wind and solar generation growth of about 10 percent in 2020, with Spain in particular seeing robust capacity gains on positive policy incentives. Cost declines will continue to make these technologies more cost competitive and policy measures will incentivize growth. However, the increasing demand for metals (including nickel, cobalt and lithium for batteries) and the associated energy demand and impact of mining and manufacturing may open up new environmental, social and governance (ESG) concerns, the report noted.
It also noted that hydrogen usage and flexibility will be center-stage during the Tokyo Olympics where the fuel will be used to both power vehicles for the games, as well as power the Olympic Village. In addition, Germany, UK, and the Netherlands continue to advance research and pilot projects for hydrogen power storage applications, and increasingly seek to inject hydrogen into the natural gas grid to help integrate renewables and decarbonize key sectors.
According to Chris Midgley, head of analytics, S&P Global Platts: “With the spotlight being increasingly put on the impacts of climate change as highlighted by Greta Thunberg and the Climate Extinction rebellion, lower energy prices threaten to continue to drive increased demand for energy and challenge the economics for alternative energies and transportation. Efforts by governments to increase energy prices to support the climate agenda will continue to be met by equal opposition as seen with the gilets jaunes and protests in Chile, Ecuador and Iran. As we step in to the next decade, we arrive at an intriguing crossroad for the energy transition, which will be shaped by regulation, technology and consumer sentiment. The paths we choose will shape the future for generations to come.”