Driven by falling costs, increasing investor confidence and policy support, renewable power and decarbonisation technologies are reshaping global energy markets. In Wood Mackenzie and GTM Research’s latest report ‘Future of renewables: a radical disruption,’ over 21% of all cars on the road are estimated to be electric by 2035 under the carbon-constrained scenario. Such a stark shift to EVs can displace up to 6.5 million barrels of oil demand.
Falling costs for renewables and energy storage will squeeze out gas-fired generation in South Australia as early as 2025, Wood Mackenzie and GTM Research find. By then, wind, solar and battery costs are seen decline by 15%, 25% and 50% respectively – hence they offer a “lower cost alternative” to CCGTs, which cover the bulk of South Australia’s base load power today.
Top forecasters anticipate energy demand growth through 2035, but projections on rates and market size vary significantly between Wood Mackenzie’s 'Energy View to 2035' and similar outlooks by BP, ExxonMobil (XOM) or the IEA’s New Policies Scenario. Outlooks broadly agree on which fuels will win or lose across Asia Pacific: Coal is seen static across all forecasts, backed out by gas, nuclear and renewables, although WoodMac’s projection is highest on gas growth.
Asian investors used to pour over $20 billion into US Lower 48 assets in the period 2010-13, mostly in shale plays – but this cashflow dried up some three years ago and has become “negligible,” particularly on the Permian tight oil play. Wood Mackenzie says this trend is about to change, anticipating some of Asia's largest upstream players “wish to diversify and grow production.”
The role of regasified LNG in balancing Brazil’s power sector is set to rise as it becomes more difficult to add large-scale hydro projects. Most new projects are run of the river rather than large reservoirs which allow for less storage and flexibility. Developers of LNG-to-power plants are hesitant amid uncertainty over runtime hours and future power auction rules.
Chinese NOCs are assessing how best to optimise their supply portfolios as gas demand 'disappoints' and oversupplied markets have led to weaker prices, particularly for LNG spot deliveries. Wood Mackenzie now expects China's gas demand growth will reach 360 bcm and 560 bcm in 2020 and 2030, respectively, down from earlier estimates of 420 bcm and 640 bcm.
Keen to overcome South Africa's worst electricity crisis since 2008, the government is about to launch a tender for gas-fired power stations that will run on imported LNG, in the coming weeks. If successful, Wood Mackenzie believes the IPP programmes will serve to diversify South Africa's power supply mix away from coal and significantly increase competition.
Coal has been the fuel of choice in Asia since 2010, even in the gas-centric power markets of South-East Asia. Though coal may well remain the most economical option for generating electricity, downward pressure on gas prices and public urge to curb air pollution help gas compete with coal in the region, Wood Mackenzie says.
Power markets in Europa are expected to "test the 'soft floor' provided from the coal to gas switching potential in the UK." At current coal, gas and carbon prices, the UK carbon floor prices opens up potential for fuel switching around $7/mmbtu which will sustain prices well into the summer, according to Wood Mackenzie.
Final stage of China's gas price reform is due to be completed before the end of this year, notably the increase of 'existing' city gate prices to a higher 'incremental' price. Given the oil-link of city gate prices domestic gas prices should drop substantially in H1'2015, but analysts warn that the powerful National Development and Reform Commission (NDRC) may well block this to keep domestic gas netbacks attractive for the likes of PetroChina and Sinopec.