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ROMAN STOROZHEV: Global gas price trends. Demand and supply.Gas market of Ukraine. Consumption. Production. Price trend

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Key trends

The global crisis due to COVID-19 is not an ordinary cyclical fall, it is a shock that will change the organization of the global economy. This is the deepest recession since the 1930s Great Depression.

Warm winter combined with the effects of the COVID-19 pandemic resulted in a decline in gas demand in Europe - in the first five months of 2020 it saw a 8% decline year-on-year. Falling demand resulted in a sharp drop in energy prices (Fig. 1, Oxford Institute for Energy Studies, OIES);

The gas industry suffered from falling demand to a lesser extent than the oil industry. Gas demand is less mainly in industry and the commercial sector. In energy sector, its dynamics depends on the characteristics of national regulation and capacity structure (Reuters Refinitiv study);

Since the early 2000s, the United States and China have been the main drivers of growing demand for natural gas. The growth of global gas consumption was due to the needs of e/e production. Global gas demand is projected to grow, primarily due to the industry in developing Asia countries and gas chemistry in the United States (KAPSARC study);

 

Global gas prices within 6 months of 2020 ($/million BTU)

Key trends

• The US sees a decline in number of drilling rigs against the background of low gas prices. However, production in January grew at a record pace. Thus, as of January, the number of drilling rigs in the United States was 115 units, which is 82 units less than in last year. Gas production was 8% higher than in January 2019. In June, the number of drilling rigs decreased to 75 units (according to Baker Hughes).
• Low gas prices enhance growth in energy consumption. According to the US Department of Energy, in June this year, gas consumption by power plants grew by 6% compared to the same period last year.
• Price level is affected by UGS completeness. As of June 25, Europe's UGSs were 78% full, or 85 bcm of gas. This is a record level since 2011. Gas reserves in American UGSs in June amounted to 85 bcm, which is 21 bcm higher than in the same period last year.
• As of June 17, gas reserves in Ukrainian UGSs amounted to 19.015 bcm. Ukrainian UGSs are 61.4% full.

 

Trends in natural gas production, consumption and import in 2014-2019 and 5 months of 2020 in Ukraine (mmcm)

Key trends

• For the first 5 months of 2020, compared to last year, Ukraine reduced natural gas production by 3% - to 8.52 bcm. In May, production increased by 3% and amounted to 1.724 bcm;
• Gas imports from the EU to Ukraine for 5 months of 2020 increased by 32% - to 5.25 bcm. Keen competition among traders and suppliers shows up. More than 60 companies import gas into Ukraine. Structure of imports in May: most of the gas came from Hungary - 48% (about 644 mmcm), 33% (445 mmcm) - from Slovakia and 19% (247 mmcm) from Poland - direct imports and virtual reverse).
• As for gas production: there is a risk of changes in the timing of current projects due to disruption of equipment supply schedules and labor lockdown. There will be adjustment of investment programs, freezing and absolute voidness of some new, especially capital-intensive projects.

 

Natural gas price for the industry in Ukraine (UAH per mcm)

Key trends

• For the population and DHС in Ukraine, prices are set within the PSO (public service obligation). From January 2020, natural gas wholesale price under the PSO is calculated in accordance with the resolution of the Cabinet of Ministers of Ukraine № 17 of January 24, 2020. The main indicator is the actual results of stock trading that took place from 1 to 22 of the billing month at Europe's largest TTF gas hub.
• In general, since the beginning of the year the PSO price fell by 54%, and compared to the same period last year, the fall in gas price reached 61%.
• The decrease in prices was due to the close integration of the gas markets of Ukraine and Europe, as all imported gas goes to Ukraine from Europe. Prices on Ukraine’s domestic market are based on quotations of the European exchanges considering the cost of gas delivery to the GTS of Ukraine, on the "import parity plus delivery" principle.

 

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