LNG as a Price Driver

Table of Contents

DATAMONITOR VIEW

• CATALYST
• SUMMARY

ANALYSIS

• Europe will come to fulfill an increasingly important role in the global LNG market
  • Global LNG output has increased rapidly since 2000 and is produced from an increasingly diverse range of sources
  • Global LNG supply will continue to increase to 2020 despite the global economic downturn
  • In Europe, LNG has been presented as a solution to the energy conundrum - declining reserves, climate change and security of supply
  • LNG capacity in Europe will grow to around 325bcm per year by 2017, spurred in part by the Russia-Ukraine gas crisis in January 2009
  • New pipelines and terminals in conjunction with existing facilities mean European gas markets could actually become saturated by 2020
  • Over 2011 - 12 and again in 2014 - 15, European pipeline capacity will increase significantly as new routes come on-stream

• Datamonitor uses five key metrics to determine a high, reference and low price scenario for European LNG prices in 2020
  • The economic outlook, pipelines, EU legislation, upstream trends and alternative generation determine Datamonitor' s LNG price scenarios
  • European price trends differ according to global economic growth but all will rise from 2015 as the current glut in LNG is replaced by scarcity

• Under a low price scenario, limited demand and slow economic recovery precipitate weak European LNG prices
  • The global economic recovery is weak and demand growth for gas is slow until 2015
  • The global economic recovery is slow and fragile
  • EU-Russia relations enjoy a rapprochement as gas supplies stabilize and diversify, while indigenous production declines at a slow pace
  • Internal EU policy encourages integration and energy efficiency, reducing overall demand
  • The current glut of upstream LNG supplies persists until 2015, while Asian demand grows slowly
  • Alternative power generation booms and demand for gas fired plants registers only moderate growth, weakening overall gas demand

• Under a reference price scenario, gas prices increase steadily against a backdrop of fitful and regionally differentiated economic growth
  • The economic recovery is uneven across the globe and commodity prices remain unsettled
  • Economic recovery is sporadic and localized until 2012 - 13, hindered in part by trade barriers and monetary policy mismanagement
  • Russia remains the dominant supplier to Europe but infrequent crises continue to damage EU-Russia relations; alternative pipelines come to pass but slowly
  • EU legislation aimed at cutting gas consumption and improving collective security is delayed by slow-moving institutions and intransigent governments
  • Asian demand for LNG grows, pushing prices slowly although a global market does not appear: Asian, US and European markets remain essentially decoupled
  • The closure of many coal plants, delays in new nuclear build and missed renewables targets push demand for gas, stimulating LNG development

• Under a high price scenario, regular supply disruptions and large swings in the economic cycle produce high, volatile European gas prices
  • Tight supply and bullish, mercurial economic growth produces high demand for LNG
  • Although the global economy recovers quickly, the economic cycle becomes more pronounced and erratic; growth is uneven and tempestuous
  • Russian supplies to Europe are frequently interrupted while alternative routes are blocked and indigenous supplies decline precipitously
  • The EU fails to implement meaningful energy efficiency reforms or integration policy but baseload demand grows significantly as electric cars spread
  • Upstream investment dips in response to the financial crisis and state ideologies, storing costs for later on, while Asian & US demand for gas booms
  • A high carbon price, the Large Combustion Plant Directive and failure in CCS technology push demand for gas

APPENDIX

• Further reading
• Ask the analyst
• Datamonitor consulting
• Disclaimer

FIGURES

• Figure: Global LNG trade flows (billion cubic meters)
• Figure: Global LNG production by source since 1985
• Figure: The compound annual growth rate over 2013 - 20 will be extremely high at around 9%
• Figure: The European energy conundrum
• Figure: The UK and Italy will account for a significant increase in European regasification capacity
• Figure: European gas demand and supply by type, 2009 - 20
• Figure: European import capacities: EU total and member states'
• Figure: Datamonitor projections and expectations of average European LNG prices
• Figure: Global gross domestic product and gas demand: low case scenario
• Figure: Global gross domestic product and gas demand: reference case scenario
• Figure: Global gross domestic product and gas demand: high case scenario
• Figure: Existing LNG contracts with deliveries commencing before 2015
• Figure: Existing LNG contracts with deliveries commencing before 2015
• Figure: Existing LNG contracts with deliveries commencing before 2015
• Figure: Output from Price Impact Data Model
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