Page 7 - FSUOGMWeek92020

FSUOGM COMMENTARY FSUOGM
are expecting supply response in some markets like Egypt and potentially in Eastern Australia ... however, it is US Gulf producers who have the highest marginal cost of supply and the most flexibility.”
Russia’s Yamal LNG terminal is also expected to divert more gas to Asia in 2020. The terminal’s three 5.5mn tonne per year trains were launched between late 2017 and late 2018 ahead of schedule, before offtake con- tracts with Asian buyers had come into force. As a result it sold more of its gas on a spot basis, and most of these supplies headed to Europe. With these contracts now active, the gas will instead go to Asia.
Prolonged low prices could result in Nor- wegian producers, despite being competitive, employing the same tactic as last year and hold- ing back some supply. Europe’s top supplier Rus- sia is unlikely to take such a step, given its intense focus on maintaining market share.
Low prices are also likely to result in increased gas consumption, helping to balance demand with supply.
What next?
European gas demand rose by 1.8% last year to 560 bcm, despite the warm weather, thanks to coal-to-gas switching in the power sector. Low prices over a long period will likely accelerate this trend.
Coal-fired power generation is looking
increasingly unattractive anyway, as the price of EU carbon permits (EUAs) – which plants must buy to cover their emissions – continues to climb. Even Poland, one of Europe’s most vocal advocates for coal, recently decided to convert its planned 1-GW coal-fired Ostroleka thermal power plant (TPP) to run on gas. Low gas prices may also encourage operators to convert existing coal capacity to gas.
Furthermore, governments and companies will be encouraged to invest in using gas for less-common purposes including as a vehicle and maritime fuel.
The availability of cheap LNG cargoes will also give countries an edge in supply talks with Russia. Bulgaria just announced securing a 40% price cut from Russia’s Gazprom, after increasing its intake of LNG via Greece last year. Its Russian supplies were down 25% at 2.4 bcm as a result.
Turkey is also looking to get its Russian gas cheaper. Contracts held by Turkey’s state-owned Botas and private gas firms for 8 bcm per year of Russian gas supply are due to expire before the end of last year. Ankara’s goal is to receive Rus- sian gas at a price that is competitive with LNG spot cargoes.
On the whole, Europe will benefit from COVID-19’s impact on energy markets by get- ting both its oil and gas cheaper. But this effect is likely to be eclipsed by the broader economic damage that the virus inflicts. ™
Low prices will result in gas becoming a more attractive power source.
Week 09 04•March•2020 w w w . N E W S B A S E . c o m
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