Oversupply of oil and demand for gas expected in 2020
Multinational law firm DWF has highlighted a number of trends for the global energy sector for 2020, with global head of energy Slava Kiryushin offering various insights.
Oil
Commenting on the global oil trade in 2020, Kiryushin expects there to be an oversupply: "Many oil traders have predicted a bullish 2020 for the global oil industry, with some going as far as speculating the revival of a $100 [€90] per barrel [bbl] price tag. However, recent market analysis demonstrates that this is unlikely to happen and the market will be in a position of oversupply. My view is that this will primarily be due to increased shale production and a slower than expected growth of the global economy. The International Energy Agency's latest reports support the view that there will a global oversupply.
"Even the new shipping fuel regulations set to be implemented in January 2020, known as IMO 2020, are not expected to change this trend despite potentially leading to an increased demand for low-Sulphur gasoil and diesel. No doubt that the growth of the oil supply is a sensitive topic for OPEC+ members as 500,000 bbl/day were agreed to be cut from OPEC's supply. Overall, the market is less optimistic over the ‘revival’ of the oil price."
Natural gas
Natural gas is likely to experience growing demand in 2020, according to Kiryushin: "Unlike its hydrocarbon counterpart, natural gas is likely to experience growing demand in 2020 and beyond. Whether this is due to IMO 2020, the demand for chemical products (which require gas) or the environmental push to cut greenhouse emissions, is arguable.
"The biggest influencer on gas demand is likely to be China. Its growing appetite for gas (which is higher than the next 10 countries combined) will remain constant in 2020.
"A change in climate also has a significant impact on the demand for natural gas. Whether used as fuel to keep the northern hemisphere warm during the colder winters or converted into electricity to power air conditioning during hotter summers, gas will remain at the forefront of the energy sector in 2020.
"The only real question is whether the oil-linked gas price is competitive enough against alternative fuels. If it is deemed not to be, this is likely to further increase the ongoing price review negotiations and disputes in the Asian market.
Renewables
As for renewables, Kiryushin said: "2020 is unlikely to be any different from the previous years for the renewables market. The key operating term is going to be "growth". Some commentators are forecasting that renewable energy generation growth will outpace gas growth by a factor of four. While this sounds optimistic, the rise in new technology, availability of funding and emerging markets may make this a reality. Whether this takes place in 2020 remains to be seen, but there is absolutely no stopping on the horizon for renewables.
"If further technology is developed to improve energy storage, it is likely that the renewable sector will thrive beyond current predictions, which are already promising. According to the IEA estimations, offshore wind has a technical power production potential of 36,000 TWh per year. In contrast, the US potential is roughly a third of this amount. We expect wind generation to continue thriving and a number of EPC contractors are already making adjustments to their businesses to supply offshore jackets instead of their traditional offshore oil and gas construction projects.
"Like wind, solar has tremendous potential and will remain a growing market. However, in order to ‘shine’ brighter, solar energy generation will require further support from governments and policymakers. By way of example, the uptake of solar energy in Africa could have a significant impact on the global market. Currently, Africa generates only around 5GW of solar power (i.e. less than 1% of global capacity). However, if 2020 hails a change in policy and funding for solar in Africa, the current power generation figure will change rapidly."
Power
The global power market will continue to witness a growing demand, according to Kiryushin. He said "Whether generated by gas, coal, oil or renewable sources, power will continue to witness growing demand. There is no doubt that demand in growing markets such as China, India and the Middle East will increase steadily. The ongoing urbanisation of Africa is also likely to have an impact on demand in 2020. The main question for most commentators is not 'whether' Africa demands more power but 'how quickly and by how much' this demand will rise.
"Finally, the rise of EVs, living standards in China and India (dictating more demand for HVAC systems) and industrial consumption is expected to further increase the demand. 2020 is unlikely to be any different from the previous years as more power projects will be funded, constructed, commissioned and upgraded."
Oil
Commenting on the global oil trade in 2020, Kiryushin expects there to be an oversupply: "Many oil traders have predicted a bullish 2020 for the global oil industry, with some going as far as speculating the revival of a $100 [€90] per barrel [bbl] price tag. However, recent market analysis demonstrates that this is unlikely to happen and the market will be in a position of oversupply. My view is that this will primarily be due to increased shale production and a slower than expected growth of the global economy. The International Energy Agency's latest reports support the view that there will a global oversupply.
"Even the new shipping fuel regulations set to be implemented in January 2020, known as IMO 2020, are not expected to change this trend despite potentially leading to an increased demand for low-Sulphur gasoil and diesel. No doubt that the growth of the oil supply is a sensitive topic for OPEC+ members as 500,000 bbl/day were agreed to be cut from OPEC's supply. Overall, the market is less optimistic over the ‘revival’ of the oil price."
Natural gas
Natural gas is likely to experience growing demand in 2020, according to Kiryushin: "Unlike its hydrocarbon counterpart, natural gas is likely to experience growing demand in 2020 and beyond. Whether this is due to IMO 2020, the demand for chemical products (which require gas) or the environmental push to cut greenhouse emissions, is arguable.
"The biggest influencer on gas demand is likely to be China. Its growing appetite for gas (which is higher than the next 10 countries combined) will remain constant in 2020.
"A change in climate also has a significant impact on the demand for natural gas. Whether used as fuel to keep the northern hemisphere warm during the colder winters or converted into electricity to power air conditioning during hotter summers, gas will remain at the forefront of the energy sector in 2020.
"The only real question is whether the oil-linked gas price is competitive enough against alternative fuels. If it is deemed not to be, this is likely to further increase the ongoing price review negotiations and disputes in the Asian market.
Renewables
As for renewables, Kiryushin said: "2020 is unlikely to be any different from the previous years for the renewables market. The key operating term is going to be "growth". Some commentators are forecasting that renewable energy generation growth will outpace gas growth by a factor of four. While this sounds optimistic, the rise in new technology, availability of funding and emerging markets may make this a reality. Whether this takes place in 2020 remains to be seen, but there is absolutely no stopping on the horizon for renewables.
"If further technology is developed to improve energy storage, it is likely that the renewable sector will thrive beyond current predictions, which are already promising. According to the IEA estimations, offshore wind has a technical power production potential of 36,000 TWh per year. In contrast, the US potential is roughly a third of this amount. We expect wind generation to continue thriving and a number of EPC contractors are already making adjustments to their businesses to supply offshore jackets instead of their traditional offshore oil and gas construction projects.
"Like wind, solar has tremendous potential and will remain a growing market. However, in order to ‘shine’ brighter, solar energy generation will require further support from governments and policymakers. By way of example, the uptake of solar energy in Africa could have a significant impact on the global market. Currently, Africa generates only around 5GW of solar power (i.e. less than 1% of global capacity). However, if 2020 hails a change in policy and funding for solar in Africa, the current power generation figure will change rapidly."
Power
The global power market will continue to witness a growing demand, according to Kiryushin. He said "Whether generated by gas, coal, oil or renewable sources, power will continue to witness growing demand. There is no doubt that demand in growing markets such as China, India and the Middle East will increase steadily. The ongoing urbanisation of Africa is also likely to have an impact on demand in 2020. The main question for most commentators is not 'whether' Africa demands more power but 'how quickly and by how much' this demand will rise.
"Finally, the rise of EVs, living standards in China and India (dictating more demand for HVAC systems) and industrial consumption is expected to further increase the demand. 2020 is unlikely to be any different from the previous years as more power projects will be funded, constructed, commissioned and upgraded."
