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LNG - Key Trends and Drivers of Market

Thank you

Aditya Shankar 500074495

Akhil Krisnan 500077530

Angshuman Das 500074071

Inba Arasan 500077640

Rohan Katore 500076245

References:

C O N T E N T S

  • MOPNG website

  • Global gas report 2020

  • Shell outlook 2020

  • Economic times

  • BP website and reports

HIGHLIGHTS(2018-19)

COVID19 (2020 Scenario)

DRIVERS

INDIAN -STRATEGY

LNG PORTFOLIO

HIGHLIGHTS

LNG HIGHLIGHTS 2018-2019

Global

Scenario

Supply & Demand

IMPORTANT STATS

COVID 19

COVID 19 Impact

2020 Scenario

Coal to Gas switching

warmer winters

reduced economic activity

  • COVID -19 Impact:

LNG Buyers

LNG Producers

Topics covered

  • World Scenario 2020

2%

JAPAN

  • Covid-19 started to impact gas demand from March onward.
  • Japan’s LNG demand fell by 5% y/y over the first five months in 2020 due to various factors, including a mild winter, a lower share of gas in the power sector and Covid-19 impacts

JAPAN HIGHLIGHTS

Financial crisis 2009

SOUTH KOREA

  • South Korea’s LNG demand rose by 13% y/y over JanuaryMay 2020 despite reduced economic activity

South Korea Highlights

CHINA

  • The impact of the virus on gas consumption was largely contained to early 2020.

  • Lockdown measures slowed down demand growth to 1.6% y/y in 1Q 2020 compared to 14% in 1Q 2019.

  • Industries restarted gradually in 2Q 2020, which revived demand growth. April demand was 3.8% higher y/y.

  • China’s LNG imports are also recovering , and small LNG buyers are taking the opportunity to buy cheap spot LNG.

China Highlights

  • Gas demand increased by 10% in 1Q 2020, as the country raised LNG imports to take advantage of low spot prices.

  • However, demand was down by 25% y/y in April 2020, mostly in the industrial and transport sectors.

  • Gas consumption recovered in May once businesses reopened after lockdown measures were eased – particularly in the fertilizer sector, which consumes much of the country’s imported gas.

INDIA

  • lower power demand

  • fall in industrial activity

  • lower space heating needs in the commercial sector

INDIA Highlights

Europe

Largest ever

  • Gas demand declined by 7% y/y over the first five months of 2020.

  • The fall was driven by a mild winter and higher renewable generation. lockdown measures started to impact gas demand from March.May consumption was 11% lower than March.

  • Gas use in power plants was down by 11% in Italy and Spain in the last week of May.

  • Industrial gas demand also declined by 11% in Italy and by 14% in Spain compared to expected demand.

World

  • Gas production was relatively resilient.
  • US -gas production was actually 5.3% higher in January-May 2020 compared to last year
  • Global LNG exports increased by 5.2% y/y in January-June 2020 due to a surge in supplies from the U.S.
  • LNG exports from the U.S. were up by 58% y/y in 1H 2020 .
  • Russia-Supplies from Russian LNG projects were higher by 5.7%
  • Australia-projects exported 5.3% more LNG over January-June 2020.

Europe highlights

  • Global gas demand could decline by 4% y/y in 2020

  • Around 75% of the demand loss is likely to happen in the developed gas markets across Europe, North America, CIS & Asia

United States

Global demand

  • The impact was limited, despite lower economic activity. Consumption fell by 2.8% y/y over January-May 2020.

  • The main effect was on industrial gas demand from March onward due to factory shutdowns.

  • Gas demand in power, on the other hand, went up during this period, due to low gas prices resulting in more coal-togas switching. Residential gas demand was also higher.

Global supply

USA Highlights

Import

Stats

Export

Optimise LNG PRODUCTION &

TRADING

New digital tools and capabilities

Opportunistic M & A

LNG Buyers - What must be done

Down stream Integration - Continued Market access

  • Secure operational continuity.
  • Prepare for a longer and deeper supply glut.
  • Assess specific market risk exposures.
  • Understand their relative competitiveness.
  • Fast-track margin improvement opportunities .
  • low-price environment will provide a boost.

  • Identifying ways to maximize value over the long term.

  • lock in low-cost supply while improving the terms and flexibility of contracts.

"A prolonged supply glut and lower-for-longer price environment will have significant implications. Beyond the near-term financial impact on upstream gas producers and LNG suppliers, development of future liquefaction projects may be at risk as tougher market conditions make it harder to approve new projects in the near term."

"On the flip side, new opportunities will emerge for natural-gas buyers. With a sustained lower LNG price, the case for investments that promote switching from coal to gas is now stronger."

Buyer & Seller

LNG Producers -what must be done

  • Sustainability
  • Transition to a Low carbon economy
  • Pricing Transitions
  • Infrastructure and Transport Developments and Investments
  • Access to New markets
  • New Energy Policies

DRIVERS

Drivers of LNG

Stats

  • policy
  • Floating storage re-gasification units
  • Replacing declining domestic gas production
  • Small scale LNG and transport

  • Increased economic uncertainty
  • Geo-political issues
  • Government policy
  • Competition from Fossil fuel and Renewable energy
  • 2047- According to NITI Aayog India’s energy consumption expected to reach 2300 million tonnes of oil equivalent

  • 2040-share of gas in India’s primary energy mix would rose to 8-9%

  • 2030-Govt. aims to increase contribution of natural gas to energy mix from 6.6% to 15%

  • 2030- Increasing CNG stations to 10000

*Increasing annual capacity of LNG terminals to 70 million tonnes

Gas Production and LNG import of India

Future Trends

INDIA'S LONG TERM STRATEGY

STRATEGY

Challenges

Strategy

  • Qatar- Exited from OPEC.Planning to increase its LNG production capacity by 43%(77 110 mt)by 2024

  • Russia-1. should increase investment in Russia’s energy sector to counter china 2. As EU shifts away for its gas needs india could step in quickly.

  • United States (US)- emerged as one of the world’s leading producers of natural gas and has expressed interest in expanding its energy ties with India

  • Australia- natural gas reserves estimated at 30 trillion cubic feet (TCF).With exports of LNG volumes worth 55.5 million tonnes, it has recently become the top LNG exporter in the world

  • Other prospective suppliers- Africa, Southeast Asia, and parts of West Asia that India companies must consider in pursuing energy exploration activities

India's Import strategy

1. Constraints and stress points in the LNG supply chain

2. Changes in market dynamics.

How is LNG portfolio value created? The most accurate answer is probably ‘in a bar over a five o’clock beer’… But behind the deals that underpin a portfolio, value is created via the interaction between:

VALUE

Understanding the value of an LNG portfolio

Analyzing portfolio value

LNG portfolio value creation poses a unique set of challenges:

1. Value interdependence: the value of individual LNG assets within a portfolio is interdependent, given the physical and contractual complexity of the LNG supply chain.

2. Unique portfolios: each LNG portfolio is unique given, for example, specific exposures, constraints, logistics, trading strategies and tax implications.

3. Market illiquidity: the LNG market remains relatively illiquid and has complex physical and contractual logistical constraints.

4. LNG price dynamics: prices do not follow standard normal distributions(!), and standard pricing models do not capture the complex relationships across regional price markers.

  • Nodal price dynamics (price level, spreads, correlations and volatility)
  • Portfolio exposures (e.g. commodity positions, asset flex and constraints)

Breaking It Down

Breaking it down

Value creation is underpinned by an understanding of how an LNG portfolio responds to changes in market conditions. For example, being able to quantify the value impact of a shift in Brent vs TTF pricing dynamics.

Value is captured via constructing and optimizing an appropriate combination of portfolio components and optionality

The distribution of base portfolio value is shown in blue. It is generated by simulating multiple (500+) correlated Henry Hub, TTF, JKM and Brent price paths and optimizing portfolio value against each price path.

Value creation

VALUE CREATION

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