NEW YORK, Dec. 11, 2019 /PRNewswire/ -- Analysts at
S&P Global Platts, the leading independent provider of
information, analysis and benchmark prices for the commodities and
energy markets, today released their 2020 outlook. The outlook
presumes continued high geopolitical risks to oil supply, a slight
recovery in oil demand driven by IMO 2020 low-sulfur, bunker-fuel
specification changes, and it paints oil as the bright spot in an
otherwise largely bearish energy outlook.
Chris Midgley, head of
analytics, S&P Global Platts, said: "As the new decade
begins, the first quarter may be a reprieve for an energy complex
that is largely cascading towards a race to the bottom. For 2020 as
a whole, energy prices will struggle to post any meaningful gains
over 2019, and many fuels will see sizable price declines. However,
oil prices are likely to turn in the strongest pricing performance
in 2020, benefitting from the uptick in demand from IMO 2020 and
the commitment from OPEC to restrain supply."
DEMAND FACTORS
The new forecasts from S&P Global
Analytics point to global oil demand growth accelerating to 1.26
million barrels per day (MMB/D) in 2020, up from 0.95 MMB/D growth
in 2019, with growth expected in all regions except Western Europe and Japan. About 20% of that projected growth in
oil demand is associated with the IMO bunker-fuel specification
change, which will push high-sulfur fuel oil, no longer allowed for
use in maritime shipping, into power generation, requiring more
middle distillates and low-sulfur fuel oil to satisfy demand in the
shipping sector.
Demand growth will be increasingly reliant on emerging economies
and led by distillates in 2020. Jet fuel demand is forecast to rise
by 140,000 b/d. In addition, it may
benefit from the return of the 737 Max airline fleet, which
curtailed airline demand by as much as 1% in 2019.
Weather is set to become more prominent in setting energy
demand: Despite a rosier outlook for the global economy, supported
by a weaker dollar and more constructive trade talks, weather will
have a greater impact on energy commodity demand. Heating and
cooling can swing demand significantly as total global energy
consumption grows, and agriculture cycles (monsoons, flooding, and
drought) affect harvests and climate events (hurricanes and
typhoons) affect economic activity.
OIL PRICES
Low oil inventories, deeper OPEC-plus
output cuts and IMO 2020 will see crude oil prices rise in early
2020, with the price influence of IMO 2020 expected to peak in
March-May. This strength will likely enable Brent to break above
$65/barrel, before falling back to
the low $60s/barrel by end-2020 as IMO support fades. West Texas
Intermediate (WTI) crude will likely break through $60/barrel in early 2020, before dropping back to
the high-$50s/barrel.
The impact of IMO 2020 will favor sweet crudes (such as WTI and
Brent). This will result in Dubai
sour crude trading at a premium, squeezing Asian refinery margins
and narrowing the Brent-Dubai
spread.
Overall refinery margins will strengthen in 2020, driven by
strong gasoil prices due to enhanced demand for distillates.
However, Asian simple-refinery margins will be negative, reducing
exports of gasoil to the West and tightening European inventories.
This will require stronger simple-refinery margins in Europe to balance demand. The overbuild of
refinery capacity in Asia and
trend towards crude-to-chemicals refineries will ultimately narrow
Asian refinery and petrochemicals margins as the current golden age
of refining comes to an end in 2020.
GEOPOLITICAL FACTORS
Geopolitical risks to oil supply
will remain elevated in 2020, as both the US and Iran continue their maximum pressure
campaigns. Sanctions relief looks unlikely before the November 2020 US presidential election, although
US sanctions policy has proven unpredictable. Libya, Iraq
and Nigeria remain as identifiable
downside production risk in 2020.
For the UK, the looming general election and its repercussions
for Brexit remain a key risk, with implications for the UK's
participation in the EU Emissions Trading Scheme and UK's overall
carbon price.
The China/US trade war and the
African Swine Fever crisis in Asia
will continue to impact agriculture, the latter having a
significant impact on soybean demand until it can be resolved.
However, after three years of sugar supply and demand surpluses
globally, the world is headed to a deficit of 6 million metric
tons, putting sugar in the spotlight, and likely to drive ethanol
prices higher.
US SHALE
US shale activity is slowing, as drillers
retain a focus on capital discipline and full-cycle break-evens
hover around $60 per barrel. Despite
this, the US will again lead the world in oil production growth,
growing by 1.3 MMB/D to 20.9 MMB/D. This will place domestic
production above domestic consumption for the first in decades.
However, the US will still be an importer of crude oil in 2020,
while US exports of shale will jump 1.5 million barrels per
day.
LNG, NATURAL GAS
The global liquefied natural gas
(LNG) market will again see large volumes of supply added in 2020,
mainly from the United States.
S&P Global Platts Analytics forecasts an additional 32 billion
cubic meters (bcm) of LNG supply in 2020, compared with an absolute
liquefaction capacity increase of 40 bcm.
LNG demand in 1Q2020 will be the most important factor for
global natural gas prices during 2020. If winter natural gas demand
underwhelms as it did last year, LNG cargoes will be forced into
Europe, where prices will again
need to fall to levels to maximize coal-to-gas switching.
European gas prices will decline over much of 2020, with Dutch
natural gas trading hub TTF prices averaging about
$4.15/MMBtu and bottoming out at $2.75/MMBtu in the third quarter. This will be
challenging to US LNG break-evens, and force a temporary
underutilization of US liquefaction capacity this summer.
The benchmark JKM LNG price is forecast by S&P Global Platts
Analytics to increase seasonally in the first quarter due to higher
freight rates and a more normal winter demand profile. Platts
Analytics sees JKM LNG prices falling a further 20%, to average
just below $4.50/MMBTU in 2020, as
new LNG supply pushes prices toward coal parity in Europe. Platts JKM prices will likely hit
fresh lows in the 2nd quarter of below $3.50/MMBTU.
2020 will be a landmark year for the US natural gas market
because of a surge in LNG exports and related feedstock demand,
which will push demand growth higher than supply
growth. However, Henry Hub (HH) will not benefit from this
structural shift. S&P Global Platts Analytics sees HH natural
gas prices averaging $2.42/MMBTU in
2020, down from 2019. On top of excess supply, which has pushed
storage levels above the five-year average, the price of HH natural
gas will be forced to stay in a range that will support a continual
rise in the dispatch of US LNG cargoes. The The US is expected to
add another 28 billion cubic meters per year of LNG export
capacity, through the completion of facilities.
In Europe, negotiations between
Russia and Ukraine over a new gas transit agreement are
keeping prompt TTF prices at higher levels, which do not
necessarily reflect the underlying supply/demand fundamentals. A
deal is looking more likely, given talks commencing between
President Putin and President Zelensky. Furthermore,
Ukraine has agreed that Gazprom
can repay its arbitration debt through the supply of gas, easing
tensions around repayment.
RENEWABLES
Electric vehicle (EV) sales and
renewable installations are poised to bounce back from a sluggish
2019. Solar PV additions are expected to rise about 3% to 96
gigawatts in 2020. Western European markets are forecast to see
combined wind and solar generation growth of about 10% in 2020,
with Spain in particular seeing
robust capacity gains on positive policy incentives. Cost declines
will continue to make these technologies more cost competitive and
policy measures will incentivize growth. However, the increasing
demand for metals (including nickel, cobalt and lithium for
batteries) and the associated energy demand and impact of mining
and manufacturing may open up new environmental, social and
governance (ESG) concerns.
Hydrogen usage and flexibility will be center-stage during the
Tokyo Olympics where the fuel will be used to both power vehicles
for the games, as well as power the Olympic Village. In addition,
Germany, UK, and the Netherlands continue to advance research
and pilot projects for hydrogen power storage applications, and
increasingly seek to inject hydrogen into the natural gas grid to
help integrate renewables and decarbonize key sectors.
Chris Midgley, head of
analytics, S&P Global Platts: "With the spotlight being
increasingly put on the impacts of climate change as highlighted by
Greta Thunberg and the Climate
Extinction rebellion, lower energy prices threaten to continue to
drive increased demand for energy and challenge the economics for
alternative energies and
transportation. Efforts by governments to increase energy prices to
support the climate agenda will continue to be met by equal
opposition as seen with the gilets jaunes and protests in
Chile, Ecuador and Iran.
As we step in to the next decade, we arrive at an intriguing
crossroad for the energy transition, which will be shaped by
regulation, technology and consumer sentiment. The paths we choose
will shape the future for generations to come."
Media Contact:
Americas: Kathleen Tanzy, + 1
917-331-4607, kathleen.tanzy@spglobal.com
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SOURCE S&P Global Platts