Weekly Overview: Europe's Gas Glut is no Cause for Complacency
A few months’ delay to the start-up of the US Sabine Pass LNG export terminal, will not have troubled gas consumers unduly in Europe, despite the particularly cold spell across northwest Europe this week. There remains plenty of inventory in storage after an otherwise exceptionally mild start to the winter; and there is no threat to supplies from Russia through Ukraine. And prices remain so low as not to trouble anyone needing to buy.
Nevertheless security of supply remains a key concern to the European Union: one think-tank, Breugel, published this week a set of proposals to mitigate any failures of supply, allowing the coordination of spare capacity and commodity at an EU level in an emergency, although it will depend for its success on an extensive programme of building interconnectors, including across the Pyrenees, in order to move the molecules to where they are needed. Spain has more LNG import capacity than it knows what to do with, the fall in industrial demand and the growth in solar and wind energy having made a nonsense of forecast growth in that country.
The European Commission is to consult with member states independently of that study, in a few weeks, on the very same question. It may find resistance in some quarters, as there is not much money knocking around European gas companies these days for projects that might never be called into action, and while there have been serious problems in countries in central and eastern Europe during Ukraine-Russia disputes, markets have visibly improved since then, as converging gas prices across Europe demonstrate.
The other big news of the week was from the United Nations: the US president, Barack Obama, announced that Iran had safely passed the UN inspections, and therefore most of the sanctions on it will be lifted in the near future, allowing more crude onto an already over-supplied market although some risks of doing business with the regime remain. Sanctions may be reimposed if Iran is considered to be not adhering to the terms of compliance.
Raising oil production will be at the top of the country’s plans in the immediate future. A significant rise in gas exports remains years away. The immediate effect of the news therefore was to send Brent further downwards. Opec in its monthly report foresaw a cut in production in the US and Canada this year, as the war of attrition takes its toll on the smaller E&P outfits. Last year, world oil supply growth was boosted by better than expected performance from those two, and from Russia and Norway, Opec said.
The week saw more bad news for some of the bigger producers such as the Anglo-Dutch major Shell, with trading updates for the fourth quarter showing big year-on-year falls in profit. However, not all was doom and gloom: its takeover target, BG, produced more barrels of oil equivalent than expected and said its results would be in line with, or ahead of, guidance for the year.
Ramp up of both its LNG trains at QCLNG project in Australia and the start-up of its sixth FPSO in Brazil drove a strong upstream performance, said CEO Helge Lund in what is likely to be his last such statement at BG; while over the course of the year, LNG shipping & marketing delivered 58% more cargoes than in 2014, “in difficult market conditions." That segment should deliver $1.4bn, bang in the middle of the $1.3bn-$1.5bn range it gave in early guidance.
It expects to report production of 704,000 barrels of oil equivalent/day, marginally up on its guidance of 680-700,000 boe/d.
And speaking at the World Economic Forum in Davos January 21, BP CEO Bob Dudley said the first and second quarters would be very difficult: “It is a big shock for producing countries. It reminds me of [the oil crisis in] 1986," he reportedly said. "Prices will remain low for longer but not forever."
William Powell