Utilities Market Drivers: Market Fundamentals

This publication has been discontinued on July 19, 2011.

Introduction

Abstract

Overview

Introduction

As the role of LNG continues to grow rapidly in both the US and Europe, convergence between the two markets grows. Formerly completely separate and distinct markets responding to autonomous market signals, this convergence will continue to grow as future market fundamentals shift and LNG supplies compete for markets on both sides of the Atlantic.

Scope

• data on growth rates in national energy consumption
• global perspective on the drivers for LNG production and supply
• insight into the likely gas and power trading hubs developing within the EU
• knowledge of the relationships between GDP and energy consumption growth rates internationally

Report Highlights

Central and Eastern Europe are increasingly the main areas of demand growth within Europe as their high rates of economic growth impact requirements for both gas and power. With per capita consumption at levels well below those seen in more mature markets there is no shortage of future growth potential.

There is significant differences both in the current state of energy markets as well as in the potential future developments within these market. There are geographic, historical and economic reasons for these differences that ongoing market liberalisation is likely to only partially normalise.

As natural gas market fundamentals in both Europe and the US have been dominated by infrastructure build, the high growth rate in the international market for LNG is an important development as gas is able to be delivered in the absence of, or indeed in addition to, pipeline gas supplies.

Reasons to Purchase

• understand the implications of continued growth in global LNG trading
• detail stages of market opening and its effect on different segments of energy markets
• show existing trading hubs within the EU as well as likely future locations

Table of Contents

• DATAMONITOR VIEW
  • CATALYST
  • SUMMARY
  • METHODOLOGY
• ANALYSIS
  • Central and Eastern Europe is increasingly taking the lead in terms of changing European market fundamentals
    • Energy demand growth in Central and Eastern Europe has outpaced that in more mature markets such as the US and Western Europe, though remains largely below the global average
    • Recent power demand growth rates in Central and Eastern European have been up to four times those seen in the UK and the US
    • Recent gas demand growth rates in Central and Eastern Europe have been in stark contrast to demand declines in more mature markets
    • Short term energy demand growth potential is largely influenced by four key interdependent factors
    • CEE per capita energy demand is significantly behind that in the US and Western Europe indicating strong demand growth potential
    • GDP growth rates in CEE are generally above those forecasted for elsewhere and will more than outweigh population decreases in terms of energy demand growth
    • Foreign players are increasingly turning their attention to the CEE region as an investment opportunity
  • Changing market fundamentals point to increasingly interrelated energy markets
    • As European gas and power markets liberalise, the required factors for wholesale hub development will begin to emerge further
    • The development of wholesale markets tends to follow a preset pattern of distinct stages
    • As Europe's most liberalised gas market, the UK's NBP hub leads European wholesale gas liquidity
    • Significant future potential exists in the Dutch TTF market which has grown at a faster rate than the UK NBP
    • Some fledgling gas hubs are beginning to emerge outside of the UK's NBP market, currently Europe's most liquid gas market
    • A number of wholesale power markets are currently at various stages of development across Europe
    • In the decade after full market opening, five regional power hubs are likely to emerge across Europe from the existing wholesale markets
    • Post full market opening, gas market hub development will be driven by individual wholesale market dynamics and arbitrage synergies
  • New infrastructure development and changing supply patterns mean that LNG will increasingly drive market fundamentals in Europe and the US
    • LNG provides an alternative way to pipelines for moving gas over long distances
    • A large number of European markets are either building or planning new LNG reception terminals
    • European LNG market dynamics have the potential to alter significantly as new sources of production emerge closer to home
    • Significant expansion in LNG regasification capacity is also under way in the USA
    • The growth in global LNG means that European gas and power market fundamentals will increasingly be driven by the US market
    • The LNG value chain is of growing relevance to the US power sector as well as gas supply utilities
• APPENDIX
  • Current, Planned and Proposed US LNG Import Terminals
    • CONSTRUCTED
    • APPROVED BY FERC
    • APPROVED BY MARAD/COAST GUARD
    • CANADIAN APPROVED TERMINALS
    • MEXICAN APPROVED TERMINALS
    • PROPOSED TO FERC
    • PROPOSED TO MARAD/COAST GUARD
  • Definitions
  • Further reading
  • Ask the analyst
  • List of Figures
    • Figure 1: Energy demand growth in Central and Eastern Europe has outpaced that in more mature markets such as the US and Western Europe, though remains largely below the global average
    • Figure 2: Recent power demand growth rates in Central and Eastern European have been up to four times those seen in the UK and the US
    • Figure 3: Recent gas demand growth rates in Central and Eastern Europe have been in stark contrast to demand declines in more mature markets
    • Figure 4: Short term energy demand growth potential is largely influenced by four key interdependent factors
    • Figure 5: CEE per capita energy demand is significantly behind that in the US and Western Europe indicating strong demand growth potential
    • Figure 6: GDP growth rates in CEE are generally above those forecasted for elsewhere and will more than outweigh population decreases in terms of energy demand growth
    • Figure 7: As European gas and power markets liberalise, the required factors for wholesale hub development will begin to emerge further
    • Figure 8: The development of wholesale markets tends to follow a preset pattern of distinct stages
    • Figure 9: As Europe's most liberalised gas market, the UK's NBP hub leads European wholesale gas liquidity
    • Figure 10: TTF growth versus NBP growth
    • Figure 11: Some fledgling gas hubs are beginning to emerge outside of the UK's NBP market, currently Europe's most liquid gas market
    • Figure 12: A number of wholesale power markets are currently at various stages of development across Europe
    • Figure 13: Likely Power Hubs by 2018
    • Figure 14: Likely Gas Hubs by 2018
    • Figure 15: LNG provides an alternative way to pipelines for moving gas over long distances
    • Figure 16: A large number of European markets are either building or planning new LNG reception terminals
    • Figure 17: European LNG market dynamics have the potential to alter significantly as new sources of production emerge closer to home
    • Figure 18: Current, Planned and Proposed US LNG Import Terminals
    • Figure 19: The growth in global LNG means that European gas and power market fundamentals will increasingly be driven by the US market
    • Figure 20: The LNG value chain is of growing relevance to the US power sector as well as gas supply utilities

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