NATURAL GAS
For natural gas:
- LNG demand worldwide will double by 2030 (Chart #35) and the current overhang of supply additions will be fully utilized by 2023. Of this growth 65% will come from Asia and Canada is closer to provide a big part of this growth as these countries get rid of their coal and move to LNG for their electric power.
Chart #35
LNG Demand Into 2030
Source: Pembina Pipeline Corporate Update – November 2019
Demand considerations
- ~65% of global gas demand growth will come from Asia
- Chinese imports in Q1 2018 have increased by 50% year-over-year
- 50% of Japan’s existing long term supply contracts expire between 2019 and 2025
Supply considerations
- Australia and Middle East currently supply ~50% of global LNG exports
- North America’s abundant supply of low cost natural gas positioned to satisfy future demand
- US expansions will meet the demand growth for 2020 and 2021 (Charts #36 & 37) but thereafter Canada can gain material market share.
Chart #36
Natural Gas Export Capacity In US To Rise Sharply Over Next Three Years
Source: Pembina Pipeline Corporate Update – November 2019
Chart #37
US Natural Gas Export Facilities
Source: Pembina Pipeline Corporate Update – November 2019
- Canadian pipeline expansion will add 5.6Bcf to take away capacity from the current 13Bcf through 2023 (Chart #38).
Chart #38
WCSB Egress Growth
Source: Pembina Pipeline Corporate Update – November 2019
- LNG starts up on the BC west coast in 2023/2024 (Chart #39) and will start at 2.1Bcf/d and rise to 5Bcf/d before the end of the next decade. If Canada is to be able to grow production to meet this need we will definitely need to see much higher natural gas prices. A price over C$2.50/mcf will be needed over the year to justify spending. We expect to see sustainable prices over C$3.00/mcf annually for AECO spot (estimate 2019 $1.60/mcf and $2.20/mcf in 2020).
Chart #39
LNG Takeaway Growth
Source: Pembina Pipeline Corporate Update – November 2019
- Canada has the shortest route to get to the Asian market and the shipping cost is the lowest (Chart #40). This is a wonderful advantage which we are now taking advantage of and should have done so a decade ago. At least now versus never.
Chart #40
West Coast Shipping Advantage
Source: Pembina Pipeline Corporate Update – November 2019
CONCLUSION
The commodity bull market has already started and we expect energy to join the party in earnest in 2020. In prior cycles energy outperforms precious metals significantly and we expect the same to occur in this cycle.