Global Commodities Report
“We are beginning to see various fuels acting in a similar manner, irrespective if it is oil, gas or coal,” stated Chris Main - Energy Markets Strategist, Citigroup Global Markets.
Market trends used to indicate that the U.S. would become a net importer, whereas today it is becoming a net exporter, which could eventually make it a serious competitor to Middle East producers. For Asia, the long term trend is as an energy importer.
As for oil specifically, withdrawals are helping to rebalance supply and demand, although blips in prices have little connection with real demand but rather are caused more by speculators. OPEC’s agreement to cut output in the hope of harming US shale has rebounded since an upturn in price, alongside cost cutting, greater efficiency and productive resources, has allowed a resurgence in American shale oil. Main advises Russia and OPEC to focus on maintaining market share rather than price “since for many producers production costs mean they can make a good profit even at $40 a barrel.”
Geopolitics, Technology & The Gas Industry
“We are seeing an end- game for the fossil fuel companies,” attributable to the ongoing decline in oil prices, decarbonisation and the impact of digitalisation, announced Dieter Helm - Fellow, New College Oxford.
Oil is at the end of the current commodity super- cycle. Over the past century, oil prices have usually traded at less than $50 per barrel. Oil at over $100 a barrel has been the exception not the norm. Helm predicts a fall to $36 per barrel, as oil can be profitably produced at $10 a barrel in Saudi Arabia and Iraq.
Shale oil production has ushered in cheap oil and allowed the US to become a net exporter and replaced Saudi Arabia as a swing producer. For oil producers this means that the value of reserves are likely to decline rather than increase.
Oil is being replaced by gas in power generation, petrochemicals and transport. In the U.S. and Europe the petrochemical industry is replacing oil with ethane to make feedstocks. A case in point is Inneos which is buying US ethane for its European petrochemical plants.
By the end of the decade, the top five oil producers will be the US, Russia, Saudi Arabia, Iran and Iraq. As the value of oil falls over time expensive long-term projects will be thrown into doubt.
New technologies such as automation, robots, 3D printing and artificial intelligence could dampen energy demand allowing reshoring, production close to consumers and a decline in freight transport. Utilities face the end of wholesale trading, since customers will be only interested in fixed- priced capacity contracts to power their machines.
Industry response: Geopolitics, Technology & the Gas Industry
“There are many futures for the energy market, not all of them will come to pass, ” said Klaus Schafer - Chief Executive Officer, Uniper. A year ago the idea that the US might significantly change its energy policy let alone consider leaving the Paris agreement was unlikely. In contrast to the Obama administration, Trump wants electricity that is firstly affordable, secure and only lastly clean. “Trump seems to have little interest in clean energy,” states Schafer. One probable impact of Trump’s policy shift is that the US will export more LNG than previously expected.
Another factor is the impact of Europe’s decarbonisation policies on neighbouring gas producers like Russia and Algeria, who are heavily reliant on Europe’s markets. If there is no demand for their gas, what happens to their economies?
The impact of new technologies and innovations on future energy demand and supply can only be guessed at. For example, at times of little wind and sun last winter, Germany used more coal and gas and imported power to meet peak demand.
Another possible future is hydrogen supplanting natural gas. Hydrogen powered buses are with us and the electrolysis process could be powered by wind.
How Can Gas Remain Relevant?
This round-robin group debated the possible futures for gas to 2035.
“Gas will need to adapt and innovate if it is to remain relevant in the years up to 2035” stated Janine Freeman - Business Development Director, UK Power Reserve. In much of Europe, gas’s future will be less about base load provision and more about meeting peak needs. One possible scenario is the use of green gases or bio gases.
The EIA expects gas power generation to reach 40 percent of total US power output in coming years said Richard McMahon - Vice President, Energy Supply & Finance, Edison Electric Institute. In addition, gas is increasingly being used to support renewables. The EIA expects energy storage and hydro becoming more active rivals of gas in the coming decades. Cheap gas has given utilities the ability to invest in grid capacity, making it easier to switch power from different types of power sources across the country.
Despite European plans to be 100 percent carbon- free gas will still be playing a significant role in Europe’s power sector in the 2020s, states Giles Dickson - CEO, WindEurope. Dickson advocated a better functioning market design - one more suited to meeting individual country’s needs - which is able to adapt to innovative technologies and new market trends, such as using wind energy to produce hydrogen as a fuel for power, heating, transport and energy.
“In Britain, the future for gas is a bit different. There is a need for more small- scale gas power generation and energy storage,” said Janine Freeman - Business Development Director, UK Power Reserve. Small plants offer flexibility compared to large- scale CCGT power plants. In addition, as they become more efficient and competitive, they are less risky to build than large scale plants.
“In France, we are seeing similar decentralisation of power generation at a local level, in fact we are seeing a decarbonisation solution by making use of biogas,” says Edouard Sauvage - CEO, GRDF. In Grenoble all the buses run on sewage gas, such demonstration projects illustrate to both the public and politicians that gas can play its part.