A Canadian multinational financial services company and the largest bank in the country by market capitalization, Royal Bank of Canada (RBC) has predicted that the current oversupply on global gas markets will continue into mid-2020.
In a report entitled European Gas Strategy — Tug of War, the bank which serves over 16 million clients and has 80,000 employees worldwide, said it saw few bullish signals over the remainder of the summer.
‘’We see the market as clearly oversupplied in 2019 and more moderately oversupplied in 2020, with really only China able to re-balance the market through continued demand growth’’, RBC which was founded in 1864 in Halifax, Nova Scotia, with its corporate headquarters located in Montreal, Quebec, and in Toronto, Ontario said.
The forecast is lower than the current 2020 price on the forward curve with S&P Global Platts assessing the Cal 2020 NBP contract the previous Thursday at 50.38 p/th.
S&P Global Platts Analytics current forecast for the NBP in 2020 is more bearish to market at 41 p/th.
The oversupply — on the back of a mild winter and a ramp-up in LNG supplies — has also seen regional gas hub pricing differentials narrow ‘’sharply’’, RBC said, adding, ‘’hub pricing in Europe and Asia has fallen well below our expectations, and with European gas storage filling at levels ahead of historical norms, it paints a pretty ugly picture for gas markets.’’
Continuing, RBC said, ‘’we do not expect many positive data points until we get through the summer, and we expect some of these headwinds to continue into 2020. European gas storages finished last winter well stocked after the mild winter, and have started filling at the fastest rate in many years “further compounding the issue of oversupply.
‘’In the short term, high storage means the potential for materially higher pricing seems unlikely, however given the shape of the demand curve through the year, we would look to October-November for gas storage to begin drawing.’’
Another sign of an oversupplied global market is high Liquefied Natural Gas (LNG) deliveries to Europe. LNG has grown to become a key source of supply to Europe, the royal bank said, accounting for 10-15% of Europe’s gas consumption so far in 2019 — well up on previous years.
The ‘’call’’ on LNG to meet European demand is set to grow to 2030 as domestic production declines, it said, pointing out, ‘’in Europe, we see a declining demand picture as the combination of stagnant growth and the rise of renewables take market share. However with indigenous production on the decline, we think the region will remain dependent on LNG imports to satisfy demand.’’
This includes increasing imports of US LNG, or ‘’freedom’’ gas, which is expected to gain market share in Europe. Earlier this year, US officials coined the phrase freedom gas to describe US LNG, offering European countries an alternative to Russian pipeline gas.
RBC is expecting that European hub pricing is likely to be driven more by Asian demand and US LNG supply growth than local factors in the longer term.
According to the bank, ‘’we expect China’s gas demand to outstrip the entire demand from all European countries by the mid-2020s, accounting for close to 600 Bcm of demand by 2030, versus Europe at around 440 Bcm by then.’’
Source: Platts
