Europe will continue to absorb surplus LNG on the global market through 2019 as the market remains oversupplied, BP CFO Brian Gilvary said Tuesday.
Speaking to analysts after BP released its first-quarter earnings, Gilvary also said that the current volatility in LNG pricing was creating opportunities for the company’s gas trading business.
“We expect LNG oversupply to continue through 2019, largely exceeding Asian demand growth with excess volumes being redirected primarily to Europe,” Gilvary said.
He added that the oversupply would likely continue into 2020, keeping a lid on both Asian and European prices.
Europe — which has had record high LNG imports as new LNG projects come onstream amid weak Asian demand — has been playing the role of global market balancer over the past few months, soaking up excess volumes.
Gilvary said that strong LNG supply growth since the end of 2018, coupled with warmer weather, had caused global gas prices to fall through Q1, notably in Asia and Europe.
The benchmark JKM Asian LNG spot price dropped as low as $4.37/MMBtu in late March, down from a recent high of just over $12/MMBtu in September last year, according to S&P Global Platts price assessments.
European gas prices have also fallen sharply since the start of the year on robust supplies and warm weather, with the TTF day-ahead price falling as low as Eur13.75/MWh in early April compared with almost Eur30/MWh in late September.
Day-ahead TTF is currently trading at the equivalent of $4.73/MMBtu, while the JKM price for June delivery is trading at $5.54/MMBtu, according to the latest Platts assessments.
“We’re seeing prices close to $5/MMBtu in terms of European and Asian pricing right now. I suspect that’s going to continue,” Gilvary said.
Trading opportunities Gilvary said there were opportunities for BP’s gas and LNG trading business despite the lower prices.
“I wouldn’t signal that a lower absolute LNG price would necessarily impact the value that we can create through our LNG and gas trading businesses,” he said. In Q1, BP reported a “strong” gas trading result, which, Gilvary said, meant a quarter that earned over $100 million more than would be expected in a typical quarter.
“From an LNG trading perspective, volatility creates opportunity. Where we see low volatility, it’s more difficult to extract value,” he said.
He added that the company was able to benefit from arbitrage opportunities in its LNG trading position.
“We have a number of equity positions and a book of structural shorts that enable us to manage the arbitrage at various prices,” Gilvary said.
“Some of those shorts are hub-based, some of those are Asia oil-related prices and some of those are European prices, [which] allows us to optimize across the piece,” he said.
In Q1, BP also benefited from its positions around the cold-weather related high gas prices in North America, he said.
BP’s total gas production in Q1 was 7.87 Bcf/d (223 million cu m/d), with the US accounting for 29%, Europe 2% and the Rest of the World 69%.
Its average gas price realization was $4.02/Mcf — down on the $4.33/Mcf in Q4 but up on the Q1 2018 average realization of $3.78/Mcf.
Sea News, May 2