Key drivers of supply and demand in the global energy market
The world energy market is highly unpredictable. Everything from global weather, to the financial markets and geopolitical pressures impacts on prices.
Prices per MMBtu in 2014 were around $9 in Europe, lower at $4 in North America and highest at $15 in Asia. MMBtu means 1,000,000 British thermal units (Btu). One Btu is the heat required to raise the temperature of one pound of water by one degree Fahrenheit.
SHALE PRODUCTION IN NORTH AMERICA
The growth in production of oil and natural gas from shale in the US has had a significant impact on the global energy market, and has been one of the main drivers of the recent fall in commodity prices.
The International Energy Agency (IEA) has predicted that the U.S. will remain the number one source of global oil supply growth up to 2020.
STRONG PRODUCTION IN the Middle East
The price of crude oil halved in the second half of 2014, as the Organization of Petroleum Exporting Countries (OPEC) maintain a strategy to boost market share by oversupplying the market. This has the effect of forcing higher cost producers in other countries to cut production, and lowered global oil prices.
Recently, growth in global demand and a slowing in US production has led to a partial recovery in the oil price, and there is much speculation and debate about where the oil price will go in the next few years.
Global demand for LNG
LNG imports are fueling the fast growing economies of developing markets such as Asia and Latin America, where strong demand has led to higher prices.
Long-term LNG supply deals such as Centrica’s contract with Qatargas to purchase up to 3 million tonnes per year to December 2018 are essential whilst preparations are made to begin exporting LNG from the US.
Centrica has signed a £10bn deal with Cheniere to begin exporting LNG from the US by the end of 2018, with supplies indexed to the lower Henry Hub price.
In March 2011, global gas prices rose sharply on world markets following the Japanese tsunami and damage to the Fukushima nuclear plant.
With most of its nuclear power industry out of action, Japan’s sudden demand for LNG imports to fill the gap effectively increased worldwide demand by some 4 to 6% and absorbed the spare export capacity of the major LNG producers.
The period of political unrest that started in December 2010 in North Africa and spread across the Middle East caused widespread concerns about supply disruptions, which added a risk premium to supplies from affected regions sending prices upwards.