Markets

Gassco, the Norwegian natural gas pipeline operator, transported 114.2 billion cubic metres of gas during 2018 from the Norwegian Continental Shelf to mainland Europe and the UK. That is nine times Norway’s annual hydropower output and the second-highest exports ever.

Growth prospects for gas-distribution utilities are at risk in several American states, as decarbonization policies on state level and rising cost-competitiveness of renewables undermine the role of gas. According to McKinsey analysis, this could pose a challenge to gas distributors in some states as early as 2026, and in most of them by 2030.

Texas’ electric power grid operator ERCOT is heading into spring and summer 2019 with lowest ever supply of back-up power. The actual reserve margins fell from 8.1% in December to 7.4% in January – just half of ERCOT's 13.75% reserve margin goal.

For January, another 250 billion cubic feet (bcf) is likely to be lost in gas demand amid unseasonably warm weather, erasing fears about a storage deficit. On the contrary, if the mild weather continues Energy Aspects expects end-March inventories to remain north of 1.55 trillion cubic feet (tcf).

Power producers in Europe, as well as parts of the U.S. and Australia, have been feeling the pinch due to a decline in wholesale energy prices brought about by stagnant demand, low gas prices and higher output of generation with low marginal costs, notably renewables. New-builds are no longer profitable which puts reserve margins at risk, hence the International Energy Agency (IEA) calls for a re-design of competitive power markets.

Mitsubishi Hitachi Power Systems (MHPS) chief executive Kenji Ando has used his New Year address to warn of a difficult business environment in 2019, with “turbid conditions” in the thermal power generation sector. “Our competitors are also seeing sharp declines in business results,” he said, stressing MHPS will forge ahead with business restructuring.

The spread in natural gas spot prices between the Henry Hub in Louisiana and the Appalachian region continued to narrow over the year just past. Prices fell at Henry Hub throughout December, and as of January 2, 2019, they were at around $2.79/mmBtu while Appalachian prices kept trading at a discount due to pipeline constraints.

Following eight years of global economic growth, economists agree a downturn is simply a matter of when and how deep. The worst case scenario, according to Wood Mackenzie, would be a recession occurring in 2020 or 2021 – just after 60-100 mtpa of LNG has taken FID.

The spot energy index in the S&P Goldman Sachs Commodity Index (GSCI) has ended the year 21% lower than at the beginning of 2018, despite a 25% rise between January and October. The plunge of the index in the fourth quarter was caused by steep declines in crude oil and petroleum product prices.

Sempra Energy has sealed a deal to divest its non-utility US natural gas storage facilities for $322 million to an affiliate of ArcLight Capital Partners. Once the sale is closed in Q1-2019, ArcLight will own 100% of Mississippi Hub and Bay Gas storage facilities.

Dominion Energy is completing the takeover of SCANA Corp. adding customers in Georgia and the Carolinas to its 18-state footprint. The merged assets, worth over $6.8 million, align well with Dominion’s regulated energy businesses. “These are well-run regulated operations that will help improve our risk profile and growth outlook," said CEO Thomas F. Farrell.

Medco Energi, Indonesia's national oil and gas company, is in talks to acquire the UK-listed Ophir Energy in a cash takeover. No amount or other details have yet been disclosed, other than Medco has to make a clear binding offer by January 28, if a deal is to proceed.

Gas-burn in the electric power sector is forecast to peak around 2035 and start declining from 2040, by when wind and solar are set to become the dominant energy sources. Data by the classification society DNV GL shows that gas demand in Europe already peaked in 2010, and will do so in North America by 2020, whereas in South-East Asia and China it will only peak in the mid-2030s.

Demand growth for natural gas in China is outpacing supply. Despite rapidly rising LNG imports, some domestic shale gas production and the scheduled start of an additional 38 Bcm of Russian gas supplies through the ‘Power of Siberia Pipeline’ before the end of 2019, analysts expect a gas deficit in in the China market from 2020 onwards.

Consultations have officially started as to whether Uniper will divest all its French power plant assets to the Central European energy investment group EPH, majority-owned by the billionaire Daniel Kretinsky. Uniper confirmed it received a unilateral binding offer from EPH, but did not disclose the value of a potential deal.

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