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Rystad Energy: 2020 global oil and gas prices set to fall short of earlier forecasts

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As China’s coronavirus epidemic continues to expand and more countries are affected, the slowdown in global oil and gas consumption this year will hit suppliers who will see average prices fall below previous expectations, according to Rystad Energy’s revised forecasts.

Rystad Energy: 2020 global oil and gas prices set to fall short of earlier forecasts

Brent crude oil prices, which Rystad Energy earlier expected to average nearly US$60/bbl in 2020, are now forecast to slump to about US$56/bbl for the year following revisions to Rystad's January forecasts. Another negative revision might be around the corner due to the increasing downside risk.

Brent has come under renewed downwards pressure this week, trading below US$55/bbl as news of rising numbers of coronavirus cases across the world have spooked market participants. Rystad Energy’s latest crude oil market balances suggest that the epidemic’s net impact on oil demand could create almost the same amount of surplus crude barrels during the second quarter of 2020 as it will in first quarter of the year.

The surplus may amount to nearly 1.8 million bpd without any additional production cuts in the market, assuming Libya’s production returns to normal during 2Q20 Rystad Energy therefore sees additional downside risk to crude prices from today’s US$55 levels during the second quarter, unless at least 1 million bpd are removed from the quarter’s market balances.

Gas prices in Europe for 2020 are now forecast to fall more than previously expected, to below US$4 per million British thermal units (MMBtu) on average, according to revisions to Rystad's January forecasts. Forecasts for TTF prices in particular are cut to US$3.95 per MMBtu, a drop of US$1.61 or 29% from the January forecast.

Similarly, Rystad's price forecast for Asian Spot prices has been revised down to US$4.63 per MMBtu for 2020, which represents a drop of US$1.69 per MMBtu from our previous forecast.

Rystad Energy also see US Henry Hub gas prices remaining below US$2.5 per MMBtu for a protracted period as production continues to increase and infrastructure developments lag. Rystad's estimate for 2020 is now revised down to US$2.26 per MMBtu, a reduction of US$0.29.

The low gas prices are a result both of the coronavirus-affected demand and of an oversupply of LNG this year. But what will happen with all this cheap gas? The low prices represent a major economic incentive to switch from coal-to-power generation to gas-fired electricity production.

In Europe and in Asia, gas prices are at record low levels – significantly strengthening the economic argument for switching from coal to gas. Rystad Energy expects gas-for-power demand in Northwest Europe (Belgium, France, Germany, Italy, the Netherlands and the UK) to increase around 6% this year from 2019.

There are limitations, though, says Carlos Torres-Diaz, Rystad Energy’s Head of Gas and Power Markets: “Europe is reaching a limit on how large additional gas volumes it can take, as Russian volumes remain high, storages are full, and temperatures stay mild. Asian buyers should take advantage of the price slump to import higher volumes of a cheaper and less carbon-intensive fuel than coal."

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